Present Value Question:
Submitted by pmptesttaker on Thu, 03/11/2010 - 19:43
What is the present value if the organization expects to make $500,000 three years from now and the annual interest rate is 4 percent?
1.$4000
2.$5000
3.$25000
4.$4500
Correct Answers are : 1
Where is the $4000 coming from?
Forums:
pkukilla
Thu, 03/11/2010 - 20:13
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pv= 444498.17
PV (1+r)^n = FV
PV=> FV(1+r)^n
PV = 500000/(1.04*1.04*1.04)
= 444498.17
I have seen this question in one of the site with 200 questions and choices were obviously wrong
ChandraR
Thu, 03/11/2010 - 20:32
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Those guys messed up by
Those guys messed up by making a fundamental blunder. For 1+r, they took it as 1+4 = 5 and calculated as 500000/(1+4)^3 instead of 500000/(1+0.04)^3.
Chandra
pmptesttaker
Thu, 03/11/2010 - 20:35
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Present Value
Thanks for the answer....I keep on confusing these formulas:
PV = F V .
ChandraR
Thu, 03/11/2010 - 20:40
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Remember simple interest
Remember simple interest and compound interest calculations! FV is nothing but compound interest calculation
Chandra
admin
Sat, 03/13/2010 - 14:14
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Chandra - Good response.
Chandra - Good response. Liked the way you pointed out the mistake :)