Question

Tom wants to calculate the present value of $15,000 he will receive in five years, given an 8% discount rate. What is the present value?

Answer 1

To calculate the present value (PV) of a future amount of money, you can use the formula:

\[
PV = \frac{FV}{(1 + r)^n}
\]

where:
- \(FV\) = future value ($15,000 in this case),
- \(r\) = discount rate (8% or 0.08),
- \(n\) = number of years until the amount is received (5 years).

Plugging the numbers into the formula:

\[
PV = \frac{15000}{(1 + 0.08)^5}
\]
\[
PV = \frac{15000}{(1.08)^5}
\]
\[
PV = \frac{15000}{1.469328}
\]
\[
PV \approx 10209.28
\]

Therefore, the present value of $15,000 received in five years at an 8% discount rate is approximately **$10,209.28**.