Question

You have purchased a new mattress for $2,000, and the store has given you a liquidity loan;take 12 months, same as cash now deal. This means that you do not actually have to pay for the mattress for another year. One year from now you will have to give the store the full price of $2,000. If the annual interest rate is 10%, how much money do you need today to ensure that you will have $2,000 one year from today? (Hint-compute the present value.)

A) $1800
B) $1,818
C) $1,980
D) $1900

Answer 1

correct option is B) $1,818

Step-by-step explanation:

given data

new mattress = $2,000

time = 12 months = 1 year

rate = 10 % = 0.10

solution

we will apply here present value formula that is here express as

present value = Principal ×
`( 1+rate)^(time)` ......................1

put here all these value time 1 year and rate 0.1 and consider principal is x so

present value = Principal ×
`( 1+rate)^(time)`

2000 = x ×
`( 1+0.1)^(1)`

x = 1818

so correct option is B) $1,818