Assuming a Market Rate of Interest Equal to 7 Percent

question 254

Multiple Choice

Assuming a market rate of interest equal to 7 percent and anticipated inflation is 2 percent, what is the real (adjusted for inflation) present value of $200 to be received one year from today?

• A) $190
• B) $214
• C) $187
• D) $210

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Definitions:

Payee

The individual or entity to whom a payment is to be made or credited.

Allowance Account

A contra-asset account used to record adjustments to accounts receivable, reflecting the amounts expected not to be collected.

Uncollectible

Refers to accounts receivable that are considered to be uncollectable from debtors due to their inability to pay.

Credited

A term used in accounting to denote an increase in liabilities or equity accounts, or a decrease in assets or expense accounts.