Question

What is the present value of a security that will pay $38,000 in 20 years if securities of equal risk pay 11% annually? Do not round intermediate calculations. Round your answer to the nearest cent.

Answer 1

$4,713

Step-by-step explanation:

The formula and computation of the present value are shown below:

= Future value ÷ (1 + rate)^number of years

= $38,000 ÷ (1 + 0.11)^20

= $4,713

This (1 + rate)^number of years is also known as the discount factor which helps to calculate the amount of the present value

We simply apply the above formula so that the accurate value can come