Problem
What is the present value of a cash flow of $\$ 1500$ if the rate of annual interest is $8.5 \%$ ? Round to the nearest cent. The present value is $\$$ Question Help: Written Example Message instructor Post to forum Submit Question
Solution
Step 1 ：Given a future value (FV) of $1500, an annual interest rate (r) of 8.5%, and a time period (n) of 1 year, we want to find the present value (PV).
Step 2 ：The formula for present value is \(PV = \frac{FV}{(1 + r)^n}\).
Step 3 ：Substitute the given values into the formula: \(PV = \frac{1500}{(1 + 0.085)^1}\).
Step 4 ：Calculate the present value to get \(PV = 1382.4884792626729\).
Step 5 ：Round the present value to the nearest cent to get approximately $1382.49.
Step 6 ：Final Answer: The present value of the cash flow is approximately \(\boxed{1382.49}\).
