Final answer:
The question is about calculating the present value of $20,000, which will be received in four years, with an annual interest rate of 14%. The calculation uses the present value formula PV = FV / (1 + r)^n.
Step-by-step explanation:
The student is asking about the present value of a future sum of money when interest rates are accounted for. To calculate the present value, we use the formula:
PV = FV / (1 + r)^n
where:
- PV is the present value
- FV is the future value
- r is the interest rate (as a decimal)
- n is the number of years until payment is received
In this case, the payment is $20,000, the interest rate is 14 percent (or 0.14 as a decimal), and the payment will be received in four years. Thus, the calculation would be:
PV = $20,000 / (1 + 0.14)^4
Calculating this gives us the present value of the future payment, taking into account the time value of money.