About how much is the present value of a dollar that will be paid to you in three years if the interest rate

Question

is 5 percent

a. $1.05

b. $1.00

c. $ .95

d. $ .86

Answer 1

PV of a dollar that will be paid in 3 years = 1/(1.05)^3 = $0.08638 ==> Choice D is the closest answer.

Answer 2

Well it has to be less.

$0.8575

Although I am not sureif that is right.If you had the dollar now you would compound the three years interest to see what the future value would be in three years time. Using the same equation you should find a figure, which compounded up would give the value $1 in three years and I don't think it's any of your suggestions.