Chapter A, Problem A.8BE

(a)

To determine

Present value: This is the amount of future value reduced or discounted at a rate of interest till particular current date.

Formula to compute present value:

$\begin{array}{l}\text{Present}\\ \text{value}\end{array}\}\text{=}\left\{\begin{array}{l}\text{Future value ×}\\ \text{Present value factor of \$1 at interest rate for time periods}\end{array}\right\}$

To determine: The present value of $25,000 to be paid after 9 years, if discounted at 10%

(b)

To determine

Present value: This is the amount of future value reduced or discounted at a rate of interest till particular current date.

Formula to compute present value:

$\begin{array}{l}\text{Present}\\ \text{value}\end{array}\}\text{=}\left\{\begin{array}{l}\text{Future value ×}\\ \text{Present value factor of \$1 at interest rate for time periods}\end{array}\right\}$

To determine: The present value of $25,000 received annually at the end of 6 years each, if discounted at 9%.