Todd, Who Just Started College, Is Promised $10,000 by His

question 101

Multiple Choice

Todd, who just started college, is promised $10,000 by his grandmother at the end of four years if he graduates with honors. What is the present discounted value of this payment at a 6% interest rate?

• A) $9,400.68
• B) $8,180.26
• C) $6,000.32
• D) $7,920.94

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Definitions:

Forward Exchange Contract

A financial contract between two parties to exchange currencies at a predetermined future date and rate, used to hedge against foreign exchange risk.

Premium

The amount paid for a product or service above its nominal value, often related to insurance or bonds.

Discount

A reduction from the usual cost of something, or the amount by which an asset's book value is reduced for accounting purposes.

Inception Date

The date on which an agreement, contract, or financial instrument becomes effective.