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Questions
BUSFIN 3220 AU2025 (2910) BUSFIN 3220 - AU2025 - Tutorial Exam - Will be Taken in Recitation
Single choice
With an applicable annual interest rate of 10%, what is the present value of a $500,000 lump sum that will be received in 14 years?
Options
A.$130,985.61
B.$132,612.42
C.$131,665.63
D.$126,771.36
View Explanation
Standard Answer
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Approach Analysis
We begin by identifying the formula for present value (PV) of a future lump sum when the annual interest rate is given: PV = Future Value / (1 + r)^t, where r is the annual rate and t is the number of years.
Here, Future Value = $500,000, r = 0.10, and t = 14. So we need to compute (1.10)^14 to determine the discount factor.
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