What is the present value of a \$350 payment to be received in one year if the discount rate is 10\%?

• A. \$315.00
• B. \$350.00
• C. \$318.18
• D. \$335.00

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of present value (PV). Present value is the current worth of a future sum of money given a specific discount rate. The formula for calculating PV is: PV = FV / (1 + r)^n, where FV is the future value, r is the discount rate, and n is the number of periods.
2. Step 2: Identify the given values in the problem. The future value (FV) is \$350, the discount rate (r) is 10% (or 0.10 in decimal form), and the number of periods (n) is 1 year.
3. Step 3: Substitute the given values into the present value formula. Using MathML, the formula becomes: $\mathrm{PV}=\frac{\mathrm{FV}}{(1+r{n}^1)}$
4. Step 4: Perform the calculation step-by-step. First, add 1 to the discount rate (1 + 0.10 = 1.10). Then, raise this value to the power of n (1.10^1 = 1.10). Finally, divide the future value (\$350) by this result.
5. Step 5: Interpret the result. The calculated present value represents the amount you would need to invest today at a 10% discount rate to receive \$350 in one year.