What is the present value of an investment that will be worth $2000 at the end of five years? Assume an APR of 6% compounded monthly. Present Value= $____
See previous post.
To find the present value of the investment, we can use the formula for present value of a future cash flow:
PV = FV / (1 + r)^n
Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.
Given:
FV = $2000
APR = 6% (annual percentage rate)
Compounding frequency = monthly
n = 5 years
First, we need to convert the annual interest rate to a monthly interest rate by dividing it by 12 (the number of months in a year):
Monthly interest rate = APR / 12 / 100
Next, we need to convert the number of years to the number of periods (months):
Number of periods = n * 12
Now we can substitute the values into the formula:
PV = $2000 / (1 + (APR/12/100))^((n*12))
Calculating the monthly interest rate and the number of periods:
Monthly interest rate = 6 / 12 / 100 = 0.005
Number of periods = 5 * 12 = 60
Plugging in the values:
PV = $2000 / (1 + 0.005)^(60)
Now we can calculate the present value:
PV = $2000 / (1.005)^60
Using a calculator or spreadsheet, raise (1.005) to the power of 60, and then divide $2000 by that result.
The present value of the investment is the result you obtain from the calculation.