Calculate the present value of 1,000 to be received in 3 years at a discount rate of 5% per year.

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Multiple Choice

Calculate the present value of 1,000 to be received in 3 years at a discount rate of 5% per year.

Explanation:
The idea here is the time value of money: money today is worth more than the same amount in the future because it can earn interest. To find the present value of 1,000 to be received in 3 years at a 5% annual discount rate, use PV = FV / (1 + r)^n. Here (1 + 0.05)^3 = 1.157625, so PV = 1000 / 1.157625 ≈ 863.84. This reflects what amount today would grow to 1,000 after three years at 5% per year. The other numbers would come from using a different numerator, a different rate, or a different time horizon.

The idea here is the time value of money: money today is worth more than the same amount in the future because it can earn interest. To find the present value of 1,000 to be received in 3 years at a 5% annual discount rate, use PV = FV / (1 + r)^n. Here (1 + 0.05)^3 = 1.157625, so PV = 1000 / 1.157625 ≈ 863.84. This reflects what amount today would grow to 1,000 after three years at 5% per year. The other numbers would come from using a different numerator, a different rate, or a different time horizon.

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