If the interest rate is 3% and a total of $4,370.91 will be paid to you at the end of 3 yrars, what is the present value of that sum?
my answer: $4,ooo.oo
To find the present value of a future sum, we can use the formula for calculating the present value of a future value:
Present Value = Future Value / (1 + Interest Rate)^Number of Years
In this case, the future value is $4,370.91, the interest rate is 3%, and the number of years is 3. Let's plug in these values into the formula:
Present Value = $4,370.91 / (1 + 0.03)^3
Calculating further:
Present Value = $4,370.91 / (1.03)^3
Present Value = $4,370.91 / (1.092727)
Present Value ≈ $3,998.69
Therefore, the present value of $4,370.91 at an interest rate of 3% for 3 years is approximately $3,998.69. Your estimated answer of $4,000.00 is close to the actual answer.
To find the present value of a future sum, we 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)^Number of years
In this case, the future value is $4,370.91, the interest rate is 3%, and the number of years is 3.
Let's plug in these values into the formula:
Present Value = $4,370.91 / (1 + 0.03)^3
Now, let's simplify the calculations step by step:
1. Add 1 to the interest rate:
1 + 0.03 = 1.03
2. Raise the result to the power of the number of years:
1.03^3 = 1.092727
3. Divide the future value by the calculated result:
$4,370.91 / 1.092727 ≈ $4,000.00
So, the present value of $4,370.91 is approximately $4,000.00. Your answer of $4,000.00 is correct!