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A sum of money amounts to $5000 in 5 years at a rate of 4% per annum. What is th

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Question: A sum of money amounts to $5000 in 5 years at a rate of 4% per annum. What is the true discount?

Options:

  1. $300
  2. $400
  3. $500
  4. $600

Correct Answer: $400

Solution: 

Present Worth = Amount / (1 + rt) = 5000 / (1 + 0.04*5) = 5000 / 1.20 = $4166.67. True Discount = 5000 - 4166.67 = $833.33.

A sum of money amounts to $5000 in 5 years at a rate of 4% per annum. What is th

Practice Questions

Q1
A sum of money amounts to $5000 in 5 years at a rate of 4% per annum. What is the true discount?
  1. $300
  2. $400
  3. $500
  4. $600

Questions & Step-by-Step Solutions

A sum of money amounts to $5000 in 5 years at a rate of 4% per annum. What is the true discount?
  • Present Worth – The present worth is the current value of a future sum of money, discounted at a specific interest rate over a certain period.
  • True Discount – True discount is the difference between the future amount and its present worth, representing the cost of borrowing or the interest foregone.
  • Interest Calculation – Understanding how to calculate interest over time using the formula for simple interest.
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