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Present Value

# Present Value - -this method is used when periodic cash...

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- Present Value: the value now of a given amount to be paid or received in the future, assuming compound interest. - Discounting the future amount: process used to determin the present value. - Present value = future value / (1+ i) ^ n - Ex: 1000 discounted at 10 percent for one year o PV = 1000 / (1+.1)^1 - present value of annuity: value now of a series of future receipts or payments, discounted assuming compound interest. - When computing present value of annuity. Necessary to knw o 1: discount rate o 2: number of discount periods o 3: amount of periodic receipts or payments
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Unformatted text preview: -this method is used when periodic cash flows are not the same each period-when future receipts are the same in each period, annuity table can be used. -When semiannual, you double periods and halve the discount rate. Computing present value of a long term note or bond-this is a function of payment amounts, length of time until payments are made, and the discount bond-ex: issue a 5 year bond-to find out the amount fo be paid, you must figure out series of interest payments (an annuty) and a single sum or the principal amount. -...
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