BUSINESS FINANCE 30 4 SUMMATIVE EXAMINATION (18 Quarter) Present Value - the amount you have to invest today if you want to have a certain amount of cash flow in the future. It answers the question How much must be invested today to produce a certain amount in the future. Since future value is calculated by multiplying the present investment by 1 - interest rate compounded by the number of periods. we shall just reverse the process This method is called discounting Example You need P25,000.00 to buy a laptop when you enter into college 2 years from now. How much must you invest now if the interest rate is at 6% per annum? Future Value = 25,000.00 Interest/Rate = 6% Time = 2 years DI Time Formula: ucure Value Present Value = (1+rate) 25.000 Present Value = (1+696) 2 years 25,000 (1+0.062 25,000 (106)2 25.000 (1 06 1 106) 25.000 (1.1236) Present Value = 22, 249.91 Given the example above, solve the following using the future value formula. Show your step by step solution. Write your answers in 1 whole sheet of paper.( 5 points each) 1. If you want to buy a laptop in 2 years, how much will you save in a bank today that offers 4% interest rate per annum?
