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.