Question

The 2-year discount factor is 0.92.

Required:
a. What is the present value of $1 to be received in year 2?
b. What is the present value of $2,000?

Answer 1

a. $0.92

b. $1,840

Step-by-step explanation:

a. 2 year discount factor is 0.92

Present value of $1 to be received in 2 years =

$1 * discount factor

Present value = $1 * 0.92

Present value = $0.92

b. Present value of $2000 can also be calculated in the same manner by using the 2 year discount factor.

Present value = $2000 * 0.92

Present value = $1,840