6. If you expect to receive a gift of $50,000 six years from now, the present wo

Question

6. If you expect to receive a gift of $50,000 six years from now, the present worth of the gift at a real interest rate of 4% per year and an inflation rate of 3% per year is closest to: A. $37,200 B. $33,100 C. $29,800 D. $27,600 Formula used: What is the discounted payback period for a business that has an income of $5000 per year and expenses of $1 500 per year if your initial investment was $23,800 and your MARR is 10% per year? A. Less than 6 years 7. B. 8 years C. 12 years D. 17 years Interest formula used: For a market interest rate of 16% per year, compounded quarterly, and an inflation rate of 2% per quarter, the effective quarterly real interest rate is closest to? A. 2% 8. B. 3% C. 4% D. 6% Formula used:

Explanation / Answer

6.

Nominal interest rate should be considered here for the present worth (PW) calculation.

Nominal interest rate (i) = Real interest rate + Inflation rate

                                       = 4% + 3%

                                       = 7%

                                       = 0.07

Future worth (FW) = $50,000

Number of year (n) = 6

By the formula,

FW = PW × (1 + i) ^n

50,000 = PW × (1 + 0.07) ^6

50,000 = PW × 1.07 ^6

50,000 = PW × 1.50073035

PW = 50,000 / 1.50073035

       = 33,317.11

Answer: B

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