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marks People Window Help xAplia: Student Question>x ourses.aplia.com/af/servlet/quiz?quiz action takeQuiz&quiz;_probGuid-QNAPCOA8010100000041ca25e008000 Attempts: 6 Keep the Highest: 6/11 5. Introduction to the present value of money Aa Aa Under the concepts of the time value of money, you can determine the current, or present, value of a cash receipt or payment that will occur at some specified time in the future, given a specified rate of interest. This technique can be used to calculate the present value of a single or a series of future receipts or payments. Abigail and Caleb are walking after class between the library and the best pizzeria near campus. They're discussing Dr. Boudreaux's latest financial management lecture, which addressed the concept of present value and the process for calculating it. In anticipation of tomorrow's quiz, they've decided to review their lecture notes and the textbook materials and then practice one or two problems. Complete the missing information in the conversation that follows. Round your final answer to all computations to two decimal places. However, if you compute any interest factors as an ntermedate step in ourauations, round therm to fur decinal lsces Caleb So, what is a present value, and why is it important to be able to calculate it? Abigail According to Dr. Boudreaux, an asset's present or value is the current value of the cash flows that it will pay or receive in the future. Caleb Waiti Can you give me an example of when it would be appropriate to calculate a present value? Abigail Sure, but it might make more sense for you to identify such a situation. So, tell me in which of the following two scenarios you would use a present value calculation, and then explain why that is so. Scenario 1: You would like to know how much you should plage on deposit to have accumulated a certain amount of money by a specific future date. Scenario 2: You would like to know how much a given amount deposited todaywi grow into by a specific future date. Caleb Ummm. I think is the situation that requires the calculation of a present value

Explanation / Answer

Solution.

The blanks need these words below to be filled with.

1. "discounted" as we are getting a future value to a present value.

2. "Scenario 1 " talks about the present value and , Scenario 2 talks about future value.

3. deposit is both " Known" and occurs " now or presently"

4. Future Value = Present value*Interest Factor

5."Interest Factor"

6."Rreciprocal"

7. Present Value

8.Given Future value = $30000

rate = 7%, time =3 years

We know that Present value = FV*1/(1+r/100)n. PV = $30000*1/(1.07)3

= $30000*0.8163

= $24489

So in order to accumulate $30000 at the end of three years, Sarah has to invest $24489 at present.

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