Question

The Sanchez Company purchased a delivery truck on February 1, 2018. The purchase agreement required Sanchez to pay the total amount due of $15,000 on February 1, 2019. Assuming an 8% rate of interest, the calculation of the price of the truck would involve multiplying $15,000 by the:

Answer 1

Answer:

0.925926

Explanation:

present value = future value / (1 + r)ⁿ

• future value = 1
• r = 8%
• n = 1

present value = 1 / (1 + 8%) = 1 / 1.08 = 0.925926

0.925926 = the present value of $1 using an 8% discount rate for the period of 1 year. To determine the actual price of the truck you can just multiply $15,000 by 0.925926 = $13,888.89 ≈ $13,889

The basic premise of finance is that the value of money decreases in time and $1 today is worth more than $1 tomorrow.

Answer 2

Answer:

Present value of $1

Explanation:

In this question, we are asked to give the value by which the amount due on a truck is to be multiplied given the interest rate.

From the question, we can identify that $15,000 is the future value of the truck.Now, we are tasked with calculating the present value of the truck.

In order to obtain the present value, the $15,000, which is the present value will have to be multiplied by the present value of $1 for an interest rate i of 8% and a time of year n = 1( considering the time between February 1 2018 and February 1, 2019)