Answer to Question #112861 in Financial Math for Laurent

Question

What is the present value of CD with 4% annual interest that matures in 1 year with the value of $3000? What is the future value? What factor would determine which value you chose to use?

Answer 1

$FV=PV(1+r)^n$

$3000=PV(1+0.04)^1$

PV=2884.62

FV=3000, PV=2884.62

The present (modern) value of an asset is the sum of future cash receipts reduced to the current moment taking into account the interest rate or rate of return

The future value of an asset is the value that you valuation, this asset will have at some future point in time

The factor of preservation and increase of funds is chosen to use the current and future value