Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement a:
To calculate:
Present value if interest is compounded semi- annually

Answer to Problem 6.16E
Present value of $1, 00,000 when interest is compounded semi- annually= $46,320
Explanation of Solution
To calculate the present value of $1, 00,000 when interest is compounded semi- annually, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 16%
Time period= 5 years
Since the time period is semi- annually, the rate of interest of 16% would be halved (16/2) i.e. 8% and the time period of 5 years would be doubled (5 years*2) i.e. 10 years. By taking value from the present value table for 8% in 10th period row, the factor value is coming out to be 0.463193. Now, the following formula would be used:
Thus, present value of $1, 00,000 when interest is compounded semi- annually is $46,320.
Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. It indicates whether the money received by an investor today would earn a return in the future. It helps to decide whether a particular stock is worth investing in today.
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future cash flows. It can be calculated using the below- mentioned formula:
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement b:
To calculate:
Present value if interest is compounded quarterly

Answer to Problem 6.16E
Present value of $1, 00,000 when interest is compounded quarterly= $45,640
Explanation of Solution
To calculate the present value of $1, 00,000 when interest is compounded quarterly, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 16%
Time period= 5 years
Since the time period is semi- annually, the rate of interest of 16% would be 1/4th(16/4) i.e. 4% and the time period of 5 years would be four times (5 years*4) i.e. 20 years. By taking value from the present value table for 4% in 20th period row, the factor value is coming out to be 0.4564. Now, the following formula would be used:
Thus, present value of $1, 00,000 when interest is compounded semi- annually is $45,640.
Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. It indicates whether the money received by an investor today would earn a return in the future. It helps to decide whether a particular stock is worth investing in today.
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future cash flows. It can be calculated using the below- mentioned formula:
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement c:
To calculate:
Present value if discount rate of 12% is used

Answer to Problem 6.16E
Present value of $1, 00,000 when discount rate of 12%= $56,740
Explanation of Solution
For calculating the present value of $1, 00,000 when discount rate is 12%, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 12%
Time period= 5 years
Since the discount rate is 12% and time period of 5 years is given. By taking value from the present value table for 12% in 5th period row, the factor value is coming out to be 0.5674. Now, the following formula would be used:
Thus, present value of $1, 00,000 when discount rate of 12% is $56,740.
Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. It indicates whether the money received by an investor today would earn a return in the future. It helps to decide whether a particular stock is worth investing in today.
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future cash flows. It can be calculated using the below- mentioned formula:
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement d:
To calculate:
Present value if discount rate of 20% is used

Answer to Problem 6.16E
Present value of $1, 00,000 when discount rate of 20%= $40,190
Explanation of Solution
For calculating the present value of $1, 00,000 when discount rate is 20%, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 20%
Time period= 5 years
Since the discount rate is 20% and time period of 5 years is given. By taking value from the present value table for 20% in 5th period row, the factor value is coming out to be 0.4019. Now, the following formula would be used:
Thus, present value of $1, 00,000 when discount rate of 20% is $40,190.
Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. It indicates whether the money received by an investor today would earn a return in the future. It helps to decide whether a particular stock is worth investing in today.
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future cash flows. It can be calculated using the below- mentioned formula:
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement e:
To calculate:
Present value if cash is received in 3 years

Answer to Problem 6.16E
Present value of $1, 00,000 when cash is received in 3 years= $64,070
Explanation of Solution
For calculating the present value of $1, 00,000 when cash is received in 3 years, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 16%
Time period= 3 years
Since the discount rate is 16% and time period of 3 years is taken. By taking value from the present value table for 20% in 3rd period row, the factor value is coming out to be 0.6407. Now, the following formula would be used:
Thus, present value of $1, 00,000 when time period is 3 years is $64,070.
Concept Introduction:
Present value Present value, also known as discounted value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. It indicates whether the money received by an investor today would earn a return in the future. It helps to decide whether a particular stock is worth investing in today.
The expected cash flows are discounted at a discount rate which is actually the expected return. Further, the discount rate is inversely proportional to the future cash flows. It can be calculated using the below- mentioned formula:
Where n denotes the number of periods
Also, present value can be computed from the following formula:
Requirement f:
To calculate:
Present value if cash is received in 7 years

Answer to Problem 6.16E
Present value of $1, 00,000 when cash is received in 7 years= $35,380
Explanation of Solution
For calculating the present value of $1, 00,000 when cash is received in 7 years, we will be using the table indicating present value factors.
In the given problem, following information is given:
Future value to be received= $1, 00,000
Rate of interest= 16%
Time period= 7 years
Since the discount rate is 16% and time period of 7 years is taken. By taking value from the present value table for 20% in 7th period row, the factor value is coming out to be 0.3538. Now, the following formula would be used:
Thus, present value of $1, 00,000 when time period is 7 years is $35,380.
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Chapter 6 Solutions
Accounting: What the Numbers Mean
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