# Present Value Question:

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?

### 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

### 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

### Present Value

Thanks for the answer....I keep on confusing these formulas:

PV    =    F V   .

-------
(1+r)ⁿ
FV   =  PV  x (1+r)
NPV = S  (  PV  +    PV +   PV  +   PV   )
----     ----   ----    ----
(1+r)ⁿ   (1+r)ⁿ  (1+r)ⁿ  (1+r)ⁿ

### Remember simple interest

Remember simple interest and compound interest calculations!  FV is nothing but compound interest calculation

Chandra ### Chandra - Good response.

Chandra - Good response. Liked the way you pointed out the mistake :)