Present Value of a Single Amount PDF

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Present Value of a Single Amount tutorial...

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Present Value of a Single Amount Problem: What is the present value of the following future amounts? $1,000 to be received 8 years from now discounted back to the present at 3 percent. Approach 1. Using the formula PV = FVn/( (1+i)n) $1,000 is the future value, so FVn =$1,000 i=3%=0.03 n=8 Using the formula we have got PV=$789.41 Approach 2. Using the formula PV = FVn ( PVIFi,n) FVn =$1,000 Open Financial table “Present value of $1” Find the row n=8 Find the column i=3% PVIF3%,8 years is in the intersection of them. So PVIF3%, 8years=0.789 PV= $1,000 X 0.789= $789 The difference between two results may have occurred from rounding. We have used the data from the table (Approach 1) that was rounded to the thousandths place. Approach 3 Using Microsoft Excel Click Formulas - Choose type - Financial - Choose PV

The window of this function is opened. Enter Rate is the interest rate per period Rate=3% Nper is the total number of periods Nper=8 Pmt is the payment made each period Pmt=0

FV is the future value FV=1000 DO NOT USE $ OR COMMA WHEN ENTERING THE VALUE

Type 0 (the payment is made at the end of the period) Get the result -$789.41. When you use Microsoft Excel or a financial calculator, remember that outflows generally have to be entered as negative numbers. In general, each problem in Time Value of Money will have at least one cash outflow (as a negative value), and at least one cash inflow (as a positive value). This is comparable to depositing money in the bank at some point in time (an outflow), and withdrawing money from the bank at another time (an inflow). Approach 4: Using Financial Calculator. Please use the manual. Get the result -$789.41....