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What is the present value of the following future amount? $198,581, to be received 8 years from...

Question:

What is the present value of the following future amount?

$198,581, to be received 8 years from now, discounted back to the present at 10%, compounded annually.

Round the answer to two decimal places

Present Value of Investment:

Any cash flow to be received in the future is not worth the same as the exact amount in hand today. The reason is that money in hand can earn interest and multiply over time. The fixed interest that money can earn today is used as the discount rate to calculate the present value of future cash flows.

Answer and Explanation:

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Given -

  • Future Value (FV) = $198,581
  • Time (t) = 8 Years
  • Discount Rate = 10% = 0.10

The formula to calculate the present value is as follows -

  • Present Value = {eq}FV / ( 1 + r ) ^ t {/eq}
  • Present Value = {eq}198581 / ( 1 + 0.10 ) ^ 8 {/eq}
  • Present Value = {eq}92,639.50 {/eq}

Learn more about this topic:

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How to Calculate Present Value of an Investment: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 15
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