Sum $500 received now with $500 received one year from now, if the discount rate is...

Sum $500 received now with $500 received one year from now, if the discount rate is 10%?

Expert Solution

$ 500Received today is $ 500

$ 500 received after 1 Year :

Present Value:

Present value is current value of Future cash flows discounted at specified discount Rate.

PV = FV / (1+r)^n
Where r is Int rate per period
n - No. of periods

Particulars	Amount
Future Value	$ 500.00
Int Rate	10.0000%
Periods	1

Present Value = Future Value / ( 1 + r )^n
= $ 500 / ( 1 + 0.1 ) ^ 1
= $ 500 / ( 1.1 ) ^ 1
= $ 500 / 1.1
= $ 454.55

Difference = $ 500 - $ 454.55

= $ 45.45

Future value:

Year	Bal Yrs	Cash flow	FVF @10%	FV of CFs
0	1	$ 500.00	1.1000	$ 550.00
1	0	$ 500.00	1.0000	$ 500.00
FV of CFs				$ 1,050.00

Future Value Factor:
FVF(r%, n) = ( 1 + r )^n
r = Int Rate per period/ Year
n = Balance Periods/ years

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