Present Value and Future Value

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Presentation transcript:

Present Value and Future Value Section 10.3 Present Value and Future Value

Definitions: Future Value: The amount available at a specific date in the future. Present Value: the amount needed today to ensure the future value will be there.

See tables on P 400… Present Value = Future x # from value table n = the number of compounding periods in an investment. i = interest rate per compounding period.

Find the lump sum that must be deposited today to have a future value of $25,500 in 5 years if funds earn 6% compounded annually.

In 5 years, Great Lakes Dairy estimates it will need $350,000 for a down payment to purchase a nearby farm. Find the amount that should be invested today to meet the down payments if the funds earn 8% compounded quarterly.

Mom and Pop Jenkins plan to buy a new car in 2 years and want to make a down payment of 25% of the estimated purchase price of $32,000. Find the amount they need to invest to make the down payments if funds earn 6% compounded quarterly.