Present Value of a Dollar Finding the present value of a dollar is taking a...
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Finance
Present Value of a Dollar
Finding the present value of a dollar is taking a lump sum from the future and finding out what it would be worth today
Example: You are promised $5,000 in three years. Interest rates are 10%. You want to see how much these payments will be worth today as a lump sum.
K = interest rate N = the number of years $ is traveling
P.V
Make a table:
F.V
$5,000
< .7513
(When bringing money back through time you must place it at the end of the table)
After the chart is set up you must refer to the present value of a dollar chart and find the number that corresponds with the interest rate and the number of years the money is traveling. Multiply this number by the amount of money being dis- counted every year and you will have the present value of that dollar.
Note: when bringing a dollar back through time, the amount will be less than what you started with.
$3,000 DISCOUNTED 7 years at 12%?
$3,000 DISCOUNTED 7 years at 5%?
$100,000 DISCOUNTED 30 years at 10%?
$100,000 DISCOUNTED 40 years at 12%?
$1,000,000 DISCOUNTED 30 years at 8%?
$1,000,000 DISCOUNTED 40 years at 7%?
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