(b) What is the present discounted value of receiving 10, 000 pounds per year at the end of each of the next 25 years, assuming annual discounting with an interest rate of 5%?

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Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.