BUS 2204: Personal Finance
Learning Journal Unit 3
University of the People
10th July, 2020
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:
The present value (PV) is the current value of a payment that will be received in the future.
Discounting is the process of determining the present value of a payment from a known future
payment, or future value. This is the reverse of determining the future value of a payment,
because in this case, we already know the future value. It is found by dividing the future value by
the same interest factor, (1 + r)n, used to determine future value. Since FV = PV × (1+r)n, then,
dividing both sides by (1+r)n yields (ThisMatter, n.d).
So, for this question, we are given;
Annual interest rate (i) = 4% = 0.04
Time (t) = 1 year
Value after 1 year = $3000
We will calculate the present value (PV) by discounting back the value of the money invested
after a year (FV after a year). I.e., PV = FV (1 + i) ^ (-t)
But, Future Value (FV) is the value of the CD after 1 year, which in this case, is $3,000 and so,
Present Value (PV) = $3000 (1+ 0.04) ^ (-1)= $3000/1.04= $2,884.62.
The present value is of CD is $2,884.62
Reference:
Learning Journal Unit 3
University of the People
10th July, 2020
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:
The present value (PV) is the current value of a payment that will be received in the future.
Discounting is the process of determining the present value of a payment from a known future
payment, or future value. This is the reverse of determining the future value of a payment,
because in this case, we already know the future value. It is found by dividing the future value by
the same interest factor, (1 + r)n, used to determine future value. Since FV = PV × (1+r)n, then,
dividing both sides by (1+r)n yields (ThisMatter, n.d).
So, for this question, we are given;
Annual interest rate (i) = 4% = 0.04
Time (t) = 1 year
Value after 1 year = $3000
We will calculate the present value (PV) by discounting back the value of the money invested
after a year (FV after a year). I.e., PV = FV (1 + i) ^ (-t)
But, Future Value (FV) is the value of the CD after 1 year, which in this case, is $3,000 and so,
Present Value (PV) = $3000 (1+ 0.04) ^ (-1)= $3000/1.04= $2,884.62.
The present value is of CD is $2,884.62
Reference:
