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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

PRESENT VALUE What is the present value of a security that will pay $5,000 in 20 years if securities of equal risk pay 7% annually?

Summary Introduction

To determine: The present value of the security.

Present Value of an Annuity: The present value of annuity refers to that value, which is the current value and on which the future value of annuity is determined. The calculation of the future value depends on the present value, which is calculated on a discounted rate.

Explanation

Solution:

Given,

The future value is $5,000

The interest rate is 7% paid annually.

The time period is 20 years.

Calculate the present value.

The formula to calculate the present value is,

PV=FV(1+I)N

Where,

  • PV is the present value,
  • FV is the future value,
  • I is the interest rate and
  • N is the time period.

Substitute $5,000 for FV, 7% for I and 20 years for N

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