Question

What is the prosent value of $15,000 received: a. Twenty four years from today when the interest rate is 10% per year? b. Twelve years from today when the interest rate is 10% per year? c. Six years from today when the interest rate is 10% per year? a. Twenty four years from today when the interest rate is 10% per year?

Answer 1

Present Value ($) 1,522.95 4,779.45 8,467.05 24 12 6 Interest rate 10% 10% 10% Future Value ($) 15,000 15,000 15,000 / • Future value Present value =- Fresent Value (1+r)n Where r = rate of interest & n = number of periods of compounding (in this case, years) OR Present value = Future value X Present value factor 1 o Present value factor = (1+r)n • Where r = rate of interest & n = number of periods of compounding (in this case, years)

Calculation of PV Factors (PVF): Years (n) Interest rate (r) Calculation of PVE | 24 PVE 0.10153 (1 + 0.1024 1 (1 + 0.10)12 0.31863 10% 1 0.56447 (1 + 0.106 x x = = a Future value ($) 15,000 15,000 15,000 PVF 0.10153 0.31863 0.56447 Present value ($) 1,522.95 4,779.45 8,467.05 x