I like it ... And I noticed it ... Just hadn't mentioned it ... Now, who is it ... ?

Flowers4Carlos

2005-11-15 15:11:09

ohhh... so that's what "total present value" is. my mistake.

btw... why hasen't n e one said something nice bout my avatar?? u guys don't like it??

ganesh

2005-11-14 19:22:58

Present Value = 5,000 + 5,000/(1.06^3) + 5,000/(1.06^4) = 13,158.46

This is done by using the formula A = P*(1 + r/100)^n Since the interest is compounded annually, r =6 and n=0, 3 and 4. Therefore, P = A/(1 + r/100)^n Is that clear?

MathsIsFun

2005-11-14 16:44:28

... then bring that back to present time by:

16612.38 / (1+.06)^4 = 13158.56

Does that make sense?

Flowers4Carlos

2005-11-14 12:27:58

hi yaz nick!!

hmmm... i'm not too sure how to compute compund interest but this is how i would do it:

use the compund interest formula: A = P(1 + r/n)^(nt) where t is in years, P is principal invested, and r is annual interest compunded n times per year.

our initial investment (P) is $5000, the interest is r=.06 compunded annually n=1, and t=3 (because we will be receiving more money after three years). plug these guys into the formula:

5000(1 + .06/1)^(1*3) = 5955.08

after three years, we will receive $5000 more so add that to 5955.08 which gives us 10955.08. we use the formula again but this time taking P=10955.08 and t=1.

10955.08(1+.06)^(1) = 11612.38

in the fourth year, we will receive an aditional $5000 so the total present value is: 11612.38 + 5000 = 16612.38

Nick014

2005-11-14 08:41:44

Im having issues with this compund interest problem.

A person will receive $5000 now, $5000 three years from now, and $5000 four years from now. If you assume a annual interest rate of 6%, what is the total present value of this cash flow?