Problema Solution
What is the principal balance if the principal plus interest at the end of 1.5 years is $3,360 at an annual interest rate of 8%?
A. $2,000
B. $2,800
C. $3,000
D. $2,200
Answer provided by our tutors
Assuming the interest is paid annually the present value (principal balance) is:
PV = FV / (1+i)^n
The above calculates what present value (PV) would be needed to produce a certain future value (FV) if interest (i) accrues for n periods.
So:
PV = 3360/(1+0.08)^1.5 = 2993.67
C. $3,000