Question #26271

answer the following question with regard to the investment theory: a fixed term investment plan will release an amount of $20000 in favor of john in 4 years when he turns 19 and would be ready for enrollment for tertiary studies at a university. naturally, he is curious to know as to what the present value of that amount is. if the discount rate is 7%, kindly assist john to find out what the present value of the $20000 is.

Expert's answer

According to investment theory, if we want to find the present value, we should discount the future value of $20,000 by the

discount rate of 7%.

So, PV = FV/(1 + i)^n, where i - discount rate, n - number of years, PV and FV

- present and future value respectively.

PV = 20,000/1.07^4 = $15,257.9

discount rate of 7%.

So, PV = FV/(1 + i)^n, where i - discount rate, n - number of years, PV and FV

- present and future value respectively.

PV = 20,000/1.07^4 = $15,257.9

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