Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 56

Present value calculations—effects of compounding frequency, discount rates, and time periods Using a present value table, your calculator, or a computer program present value function, verify that the present value of $100,000 to be received in five years at an interest rate of 16%, compounded annually, is $47,610. Calculate the present value of $100,000 for each of the following items (parts a-f ) using these facts, except

a. Interest is compounded semiannually.

---

b. Interest is compounded quarterly.

---

c. A discount rate of 12% is used.

d. A discount rate of 20% is used.

---

e. The cash will be received in three years.

---

f. The cash will be received in seven years.

Step 1 of 9

Present value:

The present value is the current value for a future sum of money with a denied rate of return. The present value is computed by using discount rates on the given rate of return. The present value can also be called as discounted value. The formula for present value is