PV2 Present Value Example

Problem

What is the present value of a lump sum of 30,000 received in 6 periods time when the discount rate is 4% per period?

Solution

The amount of 30,000 (FV) is received at the end of period 6, and needs to be discounted back 6 periods (n) to the start of period 1, at a discount rate of 4% (i).

This problem is solved using the present value of a lump sum formula as follows.

FV = 30,000
n = 6
i = 4%

PV = FV /(1 + i)n
PV = 30,000 /(1 + 4%)6
PV = 23,709.44

Explanation

At a discount rate of 4%, receiving 30,000 in 6 periods time is equivalent to receiving 23,709.44 now.

PV2 Present Value Examples

This is one of many time value of money examples, discover another at the links below.

• Individual Retirement Account Example
• AN7 Annuity Examples

January 29, 2019