SOLUTION: What is the present value of an investment that will be worth $25,000 at the end of five years? Assume an APR of 5% compounded monthly.

Question 1187059: What is the present value of an investment that will be worth $25,000 at the end of five years? Assume an APR of 5% compounded monthly.

Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
the formula to use for this problem is:

f = p * (1 + r) ^ n

f is the future value
p is the present value
r is the interest rate per time period
n is the number of time periods

in your problem:

f = 25000
p = what you want to find.
r = .05/12 (formula uses the rate, not the percent).
n = 5 * 12 = 60

your time periods are in months, so rate per year is divided by 12 to get rate per month, and 5 years is multiplied by 12 to get 60 months.

formula becomes:

25000 = p * (1 + .05/12) ^ (5 * 12)

solve for p to get:

p = 25000 / ((1 + .05/12) ^ (5 * 12)) = 19480.13476.

you can also use a financial calculator like the one found at https://arachnoid.com/finance/index.html

your inputs are shown below:

your output is shown below:

the calculator uses the percent, not the rate.
you can't enter 5/12.
it doesn't know what to do with that.
you have to enter the result of 5/12 = .41666666667.
give it enough sixes so that it will give you a more detailed answer.
8 or 9 of them is enough.
you can round at the end with a 7, or just leave it as sixes.
the calculator will display only 6 of them and it will round the last digit displayed.

you can see that the answer is the same as the one you got with the formula, except it's rounded to 2 decimal digits.

either way, your answer is that the present value is 19,480.13 rounded to 2 decimal digits.

it is important to get the interest rate per time period and the number of tiem periods right.

in this problem the time periods were in months.

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