- 1 Marks
Question
Calculate the present value, discounted at 12 percent, of receiving N300,000 at the end of year 6.
A. 151,989.34
B. 162,999.34
C. 173,989.34
D. 184,989.34
E. 195,989.34
Answer
A
Explanation:
The correct answer is “A. 151,989.34.” The present value of a future amount is calculated using the formula:
PV=Future Value/(1+r)n
Where:
- Future Value = N300,000
- r = 12% or 0.12
- n = 6 (years)
Thus, the present value (PV) is approximately 151,989.34, after discounting N300,000 over six years at an annual rate of 12%. This reflects the time value of money principle, which shows that money available today is worth more than the same amount in the future due to its earning potential.
- Tags: Discounting, Present Value, Time value of money
- Level: Level 1
- Topic: Investment Decisions
- Series: NOV 2023
- Uploader: Theophilus