chapter 12
Part Two
Present value
Members of the group
Abdiaziz Mohamed Mohamud
2. Abdinour Ali Abdullahi
3. Ahmed Abdullahi
4. Balkhiizo Ahmed Mohamed
5. Hafza Ali Hassan
1.
Present value
How much money will have to be deposited
today (or at some date) to reach a specific
amount of maturity (in the future)
Present value = CF÷ (1+R)
n
CF= Cash flow in future period
R= The periodic rate of return or interest
N=number of periods
EXAMPLE
If I need $1 in 4 years in the future, how
much must I put in the bank today (assume
an 8% annual interest)?
EXAMPLE 2
Rene Weaver needs $20,000 for college in 4 years. She can earn 8%
compounded quarterly at her bank. How much must Rene deposit at the
beginning of the year to have $20,000 in 4 years?
The End