Present value of a compunded interest

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Present value of a compunded interest

Postby barnamah » Fri 08 April, 2011 15:18

If we want future value of $800,000 that is paying 7.7% compounded monthly for 8 years, How mush money should be invested now?
which means what is the present value of $800,000 with 7.7% compounded monthly for 8 years.
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Re: Present value of a compunded interest

Postby Integr88 » Fri 08 April, 2011 15:26

the formula for calculation future value is:
`FV=PV(1+i/12)^(12*t)`

FV=future value
80,000

PV=Present value
we want to find

i=interest rate ( for 7.7% we write 0.077)
0.077/12
t=the period (number of years)
8

Solving for PV by dividing both side by `(1+i/12)^(12*t)` we have:
`(FV)/(1+i/12)^(12*t)=(PV(1+i/12)^(12*t))/(1+i/12)^(12*t)` we have:
`(FV)/(1+i/12)^(12*t)=PV` and we write it:
`PV=(FV)/(1+i/12)^(12*t)`

sub in the values:`PV=(800000)/(1+0.077/12)^(12*8)`
`PV=(800000)/(1+0.077/12)^(96)=432,931.56`
The present values is $432,931.56
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