With an interest rate of 5 percent, the present value of $100 received one year from now is approximately
A) $100.
B) $105.
C) $95.
D) $90.

One Dollar today is not the same as tomorrow because of time value of money. So if I am left with an of option of getting one dollar today or tomorrow, I would prefer having it today because the sum can be invested today to earn more by way of interest. Basically, the same amount of amout money receivable at different time periods are never the same.

The application of time value of money entails working out present value. Present value is the worth now of a sum expected at future date assuming that investment can be made at a given interest rate.

To calculate the present value of a single sum, use the formula below:

PV= FV/(1+r)∧n

Where FV = Future value, PV= Present value and n=no of periods, r= interest rate per period in decimal

in this question, PV= 100/(1+0.05)= $95

With an interest rate of 5 percent, the present value of $100 received one year from now is approximately A) $100. B) $105. C) $95. D) $90.

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With an interest rate of 5 percent, the present value of $100 received one year from now is approximately
A) $100.
B) $105.
C) $95.
D) $90.