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