Calculate the present value of 10000 payable in 5 years at 2

Calculate the present value of $10,000 payable in 5 years at 2.4% interest compounded semiannually. (Yes, do exercise 20 again, but this time use the TVM Solver! Show all the variables of the TVM Solver and the values that you entered into the variables)

Solution

We know that

Present value is , PV = FV( 1 + i )^-n

Where , FV = Future value

i = Interest rate (expressed as decimal)

n = Number of years

From the given data

Future value FV = $10,000 ,

n = 10 ( 5 years x 2 semiannual periods each year )

i = 1.2 % ( (2.4%)/2 = 1.2% per semiannual period )

i = (1.2)/100 = 0.012

Hence ,

Present value is ,  PV = FV( 1 + i )^-n

= $10,000(1 + 0.012)^-10

= $10,000(1.012)^-10

PV = $8,875.54

Therefore ,

Present value = $8,875.54