You Receive $500 Today Which You Plan to Save for Two

question 474

Multiple Choice

You receive $500 today which you plan to save for two years. Also, in two years you will be given another $500. If the interest rate is 5 percent, what is the present value of the payment of $500 today and the $500 in two years?

• A) $5001.05)2 + $500/1.05)2
• B) $5001.05)2 + $500
• C) $500 + $500/1.05)2
• D) $500 + $500

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Definitions:

Receivable

Funds that customers owe to a business for products or services already provided but not yet compensated for.

Bad Debt Reserve

An account set aside by a business to cover unpaid debts that are unlikely to be recovered.

Accounts Receivable

Money owed to a company by its customers for products or services that have been delivered but not yet paid for.

Deductions

Items of expenditure that the tax code allows taxpayers to deduct from income to arrive at taxable income.