If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

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Vicky Spears · Accepted Answer

Final Answer : True, Explanation :   Using the formula for the present value,   P V = F V ( 1 + r ) n PV = \frac{FV}{(1 + r)^n} P V = ( 1 + r ) n F V ​  , where   P V PV P V   is the present value,   F V FV F V   is the future value,   r r r   is the interest rate, and   n n n   is the number of periods, we can calculate the present value of $800 received 6 years from today at an 8.148% interest rate. Plugging in the values,   P V = 800 ( 1 + 0.08148 ) 6 PV = \frac{800}{(1 + 0.08148)^6} P V = ( 1 + 0.08148 ) 6 800 ​  , which equals approximately $500. This means at an 8.148% interest rate, you would be indifferent between receiving $500 today or $800 in 6 years, as their present values are equivalent.

If you are faced with the choice of receiving $500 today or $800 6 years from today, you will be indifferent between the two possibilities if the interest rate is 8.148 percent.

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