If FV = 10,000, rate 6%, n = 5, what is PV?

Prepare for the PHFO Quantitative Analysis For Business Exam. Study with flashcards, multiple choice questions, hints, and explanations to ensure confidence and success in your exam!

Multiple Choice

If FV = 10,000, rate 6%, n = 5, what is PV?

Explanation:
This question tests discounting a future value back to its present value using a fixed annual rate. The present value is found with PV = FV / (1 + r)^n. Plug in the numbers: PV = 10,000 / (1 + 0.06)^5 = 10,000 / (1.06)^5. Calculating (1.06)^5 gives about 1.338226, so PV ≈ 10,000 / 1.338226 ≈ 7,472.58. So the present value is approximately 7,472.58. The other amounts would result from using a different discount factor (different rate or time), which doesn’t match the given 6% over 5 years.

This question tests discounting a future value back to its present value using a fixed annual rate. The present value is found with PV = FV / (1 + r)^n.

Plug in the numbers: PV = 10,000 / (1 + 0.06)^5 = 10,000 / (1.06)^5. Calculating (1.06)^5 gives about 1.338226, so PV ≈ 10,000 / 1.338226 ≈ 7,472.58.

So the present value is approximately 7,472.58. The other amounts would result from using a different discount factor (different rate or time), which doesn’t match the given 6% over 5 years.

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