If the interest rate is 3% and a total of $4,370.91 will be paid to you at the end of 3 years, what is the present value of that sum ?
You deposit $1,000 for four years at an interest rate at 2.0 if the interest is compounded quarterly how much money do you have after the four years
2.0000
To find the present value of a future sum, we need to use the formula for compound interest:
Present Value = Future Value / (1 + interest rate)^n
Where:
Future Value = $4,370.91
Interest Rate = 3% or 0.03
n = number of years = 3
Calculating the present value:
Present Value = $4,370.91 / (1 + 0.03)^3
Present Value = $4,370.91 / (1.03)^3
Present Value ≈ $3917.46
Therefore, the present value of $4,370.91, given an interest rate of 3% and a period of 3 years, is approximately $3,917.46.
To find the present value of a future sum, you need to discount it back to the present using the interest rate. The formula to calculate the present value is:
Present Value = Future Value / (1 + Interest Rate)^n
Where:
- Future Value is the amount you will receive in the future ($4,370.91 in this case)
- Interest Rate is the interest rate per period (3% or 0.03 in decimal form)
- n is the number of periods (3 years)
Let's plug the values into the formula:
Present Value = $4,370.91 / (1 + 0.03)^3
To calculate this, you can use a calculator or follow these steps:
1. Add 1 to the interest rate: 1 + 0.03 = 1.03
2. Raise this result to the power of the number of periods: 1.03^3 = 1.092727
3. Divide the future value by this result: $4,370.91 / 1.092727 ≈ $3,999.62
Therefore, the present value of $4,370.91, assuming a 3% interest rate over 3 years, is approximately $3,999.62.