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MaterialRvwS8Oct24

# MaterialRvwS8Oct24 - Section 8 Review of Material Present...

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Section 8 Review of Material Present and Future Value Calculations are include four variables o a present value (how much an amount is worth today) o a future value (how much an amount is worth in the future) o the interest rate (denoted by an “ i” or “ r ”) o the time period (typically denoted by an “ N ”) Present Value of a single amount: how much a future amount is worth today o Present Value problems: a future value, interest rate and time period are given; you must find present value o Present Value (single amount) Equation: PV=Future Value (1+ i ) N o Example: You want to invest money in a fund today that will generate \$30,000 in five years. The interest rate is 10% and is compounded annually. How much do you have to invest today? N=5, i=0.10, FV=\$30,000 Answer (using factor): PV=30,000 x .620921 = \$18,627.64 Answer (using PV equation): PV= 30,000 =\$18,627.64 (1+.10) 5 Future Value of a single amount: how must an amount today is worth at a future date o Future Value problems: a present payment or deposit amount, interest rate and time period are given; you must find future value

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