PV = FV / (1 + i)^n
i=7%/2 semi-annually
n = 10 x 2 = 20 six month periods
PV = 50000/(1+7%/2)^20
PV = 25,128.29
This does not include the present value of the additional 5000 payments referred to.
The concept of present value is one of the most fundamental and pervasive in the world of finance. It is the basis for stock pricing, bond pricing, financial modeling, banking, insurance, pension fund valuation, and even lottery payouts.
You expect $50,000 at the end of the 10th year. You also expect $5,000 at the end of each year for the next 10 years. The interest rate is 7% per annum, compounded semi-annually. What is the present value of the single amount (-$50,000)?
