Compute the amount of money to be set aside today to ensure a future value of $1,400 in one year if the interest rate is 4.5% annually, compounded annually. The amount of money to be set aside is S (Round to the nearest cent as needed )

Compute the amount of money to be set aside today to ensure a future value of $1,400 in one year if the interest rate is 4.5% annually, compounded annually. The amount of money to be set aside is S (Round to the nearest cent as needed )

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 7P

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Concept explainers

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.

Question

Compute the amount of money to be set aside today to ensure a future value of $1,400 in one year if the interest rate is 4.5% annually, compounded annually.
The amount of money to be set aside is S
(Round to the nearest cent as needed.)

Expert Solution

Step 1 Introduction

Present value is the value of an asset in today’s term. In other words it is the amount of money which is worth now. Present value helps in making decision better related to investments.

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