Question

In calculating the present value of $1,000 to be received 5 years from today, the discount factor has been calculated to be .7008. what is the apparent interest rate?

Answer 1

To calculate the present value we shall proceed as follows:
from the present value table, the percentage corresponding to discount factor of 0.7008 in 5 years is 7%
therefore using the formula:
FV=PV(1+r/100)^n
where:
FV=$1000
PV=?
r=7%

hence:
1000=PV(1+7/100)^5
PV=1000/(1+7/100)^5
PV=712.986