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?

Question

Clara Bautista

Mathematics

9 July, 21:43

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?

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Answers (1)

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Corinne Dunlap · 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