A jumbo CD pays 250,000 in one year. It is priced so the investor earns 3% over the year. What is the price today?

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Multiple Choice

A jumbo CD pays 250,000 in one year. It is priced so the investor earns 3% over the year. What is the price today?

Time value of money drives this: the present price must be the amount you’d pay today to earn a 3% return by receiving 250,000 in one year. Use discounting: present value = future value divided by (1 + rate). Compute: 250,000 / 1.03 ≈ 242,718.45, which rounds to 242,718. So the price today is about 242,718. This reflects earning 3% over the year on that investment.

Time value of money drives this: the present price must be the amount you’d pay today to earn a 3% return by receiving 250,000 in one year. Use discounting: present value = future value divided by (1 + rate).

Compute: 250,000 / 1.03 ≈ 242,718.45, which rounds to 242,718. So the price today is about 242,718. This reflects earning 3% over the year on that investment.

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