(a) A lump sum of £10,000 is invested at an effective annual interest rate of 4.5% per annum. Determine the accumulation of the lump sum after 15 years and 6 months. (b) Given an effective rate of discount of 11% per annum, what is the result for the corresponding nominal rate of discount compounded every 6 months?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.