What is the present value of $12,200 to be received 4 years from today if the discount rate is 5 percent?

Multiple Choice

$10,459.53

$10,538.82

$7,320.00

$10,027.51

$10,036.97

The present value (PV) of a future amount can be calculated using the formula:

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

Where:
- $ FV $ is the future value, which is $12,200.
- $ r $ is the discount rate, which is 5% or 0.05.
- $ n $ is the number of years, which is 4.

Let's calculate the present value.

\[
PV = \frac{12,200}{(1 + 0.05)^4}
\]

Now solving:

\[
PV = \frac{12,200}{(1.05)^4}
\]

\[
PV = \frac{12,200}{1.21550625}
\]

\[
PV \approx 10,036.97
\]

The correct answer is **$10,036.97**.

Would you like more details or have any questions?

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Here are five related questions:
1. How would the present value change if the discount rate increased to 6%?
2. What is the future value if $10,000 is invested today at 5% for 4 years?
3. How is the discount rate related to the time value of money concept?
4. What is the impact of compounding frequency on present value calculations?
5. If the time period was 5 years instead of 4, what would the present value be at the same discount rate?

**Tip:** Present value decreases as either the discount rate or time period increases, reflecting the time value of money.

What is the present value of $12,200 to be received 4 years from today if the discount rate is 5 percent?

Learn how to calculate the present value of $12,200 to be received 4 years from today at a discount rate of 5%. This step-by-step solution explains key finance concepts such as the time value of money and the present value formula. Suitable for Grades 10-12 and college-level finance students.

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