Calculation of Present Value of Money

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;94&period;1 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p align&equals;"justify">Amount today is worth more than amount tomorrow&period; In many cases it becomes important to know the present value of accumulated return of an investment&period; This gives a clear idea to the investors about the worth of an investment&period; Present values can be calculated by using the formula given below&period;&&num;160&semi; <&sol;p>&NewLine;<p align&equals;"justify">PV&equals; FV &sol; &lpar;1&plus;r&rpar;<&sol;p>&NewLine;<p align&equals;"justify">Present Value &equals; PV<br &sol;>&NewLine;Future Value&&num;160&semi;&&num;160&semi;&&num;160&semi; &equals; FV<br &sol;>&NewLine;Discount rate&&num;160&semi;&&num;160&semi; &equals;&&num;160&semi; r<&sol;p>&NewLine;<p align&equals;"justify">Example&colon; Suppose George needs 4000 next year to purchase a new laptop&period; Interest rate is 7&percnt; per year&period; How much amount George should keep aside now in order to purchase Laptop&semi; calculate present value of 4000 at 7&percnt; interest rate&period;&NewLine;<&sol;p>&NewLine;<p> PV &equals; 4000 &sol; &lpar;1&period;07&rpar; &equals; 3738&period;32 <&sol;p>&NewLine;<p align&equals;"justify">Note&colon; George should invest 3738&period;32 for a year to purchase a laptop&period; If George has longer time to purchase a laptop he needs to investment less today&period; For example if George purchases laptop after two years&comma; calculate present value by dividing future payment by &lpar;1&period;07&rpar;&Hat;2&&num;160&semi;&NewLine;<&sol;p>&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;94&period;1 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<p align&equals;"justify">PV&equals; 4000 &sol; &lpar;1&period;07&rpar;&Hat;2 &equals; 3493&period;75&NewLine;<&sol;p>&NewLine;<p align&equals;"justify">This time George just need 3493&period;75 today to pay 4000 after two years&comma; It means that the level of investment will increase or decrease with the number of years&period; <&sol;p>&NewLine;<h3>&&num;160&semi;<&sol;h3>&NewLine;<h3>How to Find Interest Rate<&sol;h3>&NewLine;<p> &&num;160&semi;<&sol;p>&NewLine;<p> For example&colon; when George want to purchase a laptop at 4000 after one year and today he has to invest amount of 3738&period;38&comma; but he does not know about interest rate&period; So he simply calculates interest rate&colon; &NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;94&period;1 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;