SOLUTION: What is the present value of a single cash flow of $25,000 received at the end of 10 years, if we assume a discount rate of 5% annually? With a discount rate of 7%

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Question 1077224: What is the present value of a single cash flow of $25,000 received at the end of 10 years, if we assume a discount rate of 5% annually? With a discount rate of 7%
Answer by Theo(13342) About Me  (Show Source):
You can put this solution on YOUR website!
interest rates are 5% and 7%.

time period is 10 years.

interest is compounded annually.

formula is f = p * (1 + r) ^ n

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

at 5%, your problem formula becomes 25000 = p * (1.05) ^ 10

at 7%, your problem formula becomes 25000 = p * (1.07) ^ 10

solve for p in both equations and you get:

p = 25000 / 1.05 ^ 10 at 5% per year.

p = 25000 / 1.07 ^ 10 at 7% per year.

results are:

p = 15347.83 at 5% per year.

p = 12708.73 at 7% per year.