What's the present value of $1,000 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

What's the present value of $1,000 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

$741.37

$630.17

$778.44

$897.06

$563.44

To calculate the present value (PV) of $1,000 discounted back 5 years with an interest rate of 6% compounded monthly, we use the formula for present value:

\[
PV = \frac{FV}{(1 + \frac{r}{n})^{nt}}
\]

Where:
- $ FV $ is the future value ($1,000),
- $ r $ is the annual interest rate (6% or 0.06),
- $ n $ is the number of times the interest is compounded per year (monthly = 12),
- $ t $ is the time in years (5 years).

Let's break it down:
- $ r = 0.06 $
- $ n = 12 $
- $ t = 5 $
- $ FV = 1000 $

Substituting these values into the formula:

\[
PV = \frac{1000}{(1 + \frac{0.06}{12})^{12 \times 5}} = \frac{1000}{(1 + 0.005)^{60}} = \frac{1000}{(1.005)^{60}}
\]

Now, calculating $ (1.005)^{60} $:

\[
(1.005)^{60} \approx 1.34885
\]

Now, compute the present value:

\[
PV =

What's the present value of $1,000 discounted back 5 years if the appropriate interest rate is 6%, compounded monthly?

Learn how to calculate the present value of $1,000 discounted over 5 years with a 6% interest rate, compounded monthly. This example covers key financial concepts, such as the compound interest formula and exponential growth, suitable for high school students.

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