Present Value: Accumulated, Discounted, and Compounded Interest
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a. What is present value?
b. What is the present value of $1,000 to be received in five years discounted back to the present at six percent?
c. What is the future value of $1,000 invested for 10 years at ten percent interest compounded annually?
d. What is the accumulated value of $1,000 received annually for five years at five percent?
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Solution Summary
This response explains the concept of present value and calculates the present values for each scenario.
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a. What is present value?
Present value is the future value being discounted by an appropriated capitalization rate. The value of sum of money received today is more than its value received after some time. In other words present worth of rupee received after some time will be less than the rupee received today. This is because of time value of money. The investor has time preference of money because he has reinvestment ...
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