What is the present value of RM6, 500 to be received 10 years from today if our discount rate is 10%?
To calculate the present value of an amount to be received in the future, you need to use the concept of "discounting." The formula for calculating the present value is:
Present Value = Future Value / (1 + Discount Rate)^n
Where:
- Future Value is the amount to be received in the future
- Discount Rate is the rate at which future cash flows are discounted
- n is the number of periods (in this case, the number of years)
Now, let's plug in the values from your question:
Future Value = RM6,500
Discount Rate = 10%
n = 10 years
To solve this, we insert the values into the formula:
Present Value = 6,500 / (1 + 0.10)^10
Now, let's calculate it step by step:
1. Add 1 to the discount rate: 1 + 0.10 = 1.10
2. Raise the result to the power of the number of years: 1.10^10 = 2.5937 (rounded to four decimal places)
3. Divide the future value by the calculated result: 6,500 / 2.5937 = RM2,508.36 (rounded to two decimal places)
Therefore, the present value of RM6,500 to be received 10 years from today, with a discount rate of 10%, is approximately RM2,508.36.