Use the following information to answer the next two questions: You deposited the following stream of cash flow at the end of the year: Year                                               deposit                                rate of interest   1                                                    5000                                          8%   4                                                    4000                                         8.5%   6                                                    7000                                         10% What will be the total amount in your account at the end of 6 years?        2. What is the present value of your deposit?

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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.