Question

Dunston Company will receive $500,000 in a future year. If the future receipt is discounted at an interest rate of 10%, its present value is $256,580.

In how many years is the $500,000 received?

6 years
5 years
7 years
8 years

Answer 1

Answer:

After 7 year future value will be $500000

So option (C) will be correct answer

Explanation:

We have given future value which company receives = $500000

Rate of interest r = 10%

Present value , that is principal amount P = $256580

We know that future value is given by $A=P(1+\frac{r}{100})^n$, here A is future value , P is present value , r is rate of interest and n is time period

So $500000=256580(1+\frac{10}{100})^n$

$1.948=1.10^n$

Taking log both side

$log1.948=nlog1.1$

$0.2895=n\times 0.041$

n = 7 year

So after 7 year year value will be $500000

So option (C) will be correct answer