The present value of $25,860 expected 4 year from today at an interest rate (discount rate) of 6.8 percent per year is _____. (Round your final answer to a whole integer.)
Question
The present value of $25,860 expected 4 year from today at an interest rate (discount rate) of 6.8 percent per year is _____. (Round your final answer to a whole integer.)
Solution
To calculate the present value, you can use the formula:
PV = FV / (1 + r)^n
where:
- PV is the present value
- FV is the future value
- r is the interest rate
- n is the number of periods
In this case:
- FV = $25,860
- r = 6.8% = 0.068 (you need to convert the percentage into a decimal)
- n = 4 years
Substituting these values into the formula gives:
PV = $25,860 / (1 + 0.068)^4
Now, calculate the denominator (1 + 0.068)^4:
= (1.068)^4 = 1.297
Then, divide the future value by this number:
PV = 19,937.55
Rounding this to the nearest whole number gives $19,938.
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