- Suppose your bank account will be worth $4,200.00 in one year. The interest rate (discount rate) that the bank pays is 5%.
PV = FV * [1 / (1 + i)t], where PV is the present value my bank account,
FV is the future value,
i is the interest rate the bank pays, and t is the time period (in years). Then PV = FV * [1 / (1 + i)t] = 4,200 * [1 / (1 + 0.05)1] = 4,200 * [1 / (1.05)1] = = 4,200 * [1 / 1.05] = 4,200 / 1.05 = 4,000
So, today the present value of my bank account is $4,000.00
- Suppose you have two bank accounts, one called Account ...
