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 a future cash flow, you need to use the formula for present value (PV) which is:
PV = CF / (1 + r)^n
Where:
PV = Present value
CF = Cash flow to be received in the future
r = Discount rate (expressed as a decimal)
n = Number of years into the future
In this case, the CF is RM6,500, the discount rate (r) is 10% (or 0.10 as a decimal), and the n is 10 years.
Plugging these values into the formula, we get:
PV = RM6,500 / (1 + 0.10)^10
Now, let's solve it step by step:
Step 1: Calculate the discount factor: (1 + 0.10)^10 ≈ 2.5937
Step 2: Divide the cash flow by the discount factor: RM6,500 / 2.5937 ≈ RM2,507.36
Therefore, the present value of RM6,500 to be received 10 years from today with a discount rate of 10% is approximately RM2,507.36.