Present Value of Amounts Due

Assume that you are going to receive $400,000 in 10 years. The current market rate of interest is 5%.

a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annually. Round to the nearest whole dollar. $fill in the blank 1

b. Why is the present value less than the $400,000 to be received in the future? The present value is less due to

deflationinflationthe compounding of interest

over the 10 years.