Question

Karel sells goods to customers in exchange for a $100,000 noninterest-bearing note due in 2 years. The interest rate on this type of loan is 8%. What is the present value of the note

Answer 1

Answer:

$85,734

Step-by-step explanation:

We have been given that Karel sells goods to customers in exchange for a $100,000 non-interest-bearing note due in 2 years. The interest rate on this type of loan is 8%. We are asked to find the present value of the note.

$PV=FV\frac{1}{(1+r)^n}$, where,

PV = Present Value,

FV = Future Value,

r = Interest rate in decimal form,

n = Time

Let us convert given interest rate into decimal form as:

$8\%=\frac{8}{100}=0.08$

$PV=100,000*\frac{1}{(1+0.08)^2}$

$PV=\frac{100,000}{(1.08)^2}$

$PV=\frac{100,000}{1.1664}$

$PV=85733.882030$

$PV\approx 85,734$

Therefore, the present value of the note is $85,734.