Chapter 5R, Problem 13MCQ

To determine

The correct option that refers to the future value of $1000.

Answer to Problem 13MCQ

Option c is correct.

Explanation of Solution

Explanation for the correct option:

Given Information:

Interest rate is 2%

PV is $1000

Number of years is 1

c.

The value of dollar $1000 that is lent today for one year can be determined by using the formula, i.e., $1 ($1+r). Computation of FV of $1000 is as follows:

  $\begin{array}{c}\text{FV}=\text{PV}{\left(1+\text{r}\right)}^1\\ =\$1000{\left(1+.02\right)}^1\\ =\$1000\times 1.02\\ =\$1020\end{array}$

Therefore, option c is correct.

Explanation for incorrect options:

Since the question is numerical-based, other options are incorrect.

Economics Concept Introduction

Present value of money: This is the concept that is used by every investor or financial dealer where the value of the dollar received today is compared with the value of the dollar that is expected to be received later by using interest rates.

Future value: Future value of $1 will be determined by using $1($1+r), which means the future value of $1 will be greater due to the growth rate.