Question: Discounting Formula for Present Value: PV = FV/(1+i) n Compounding Formula for Future Value: FV= PV(1+i) n Note: When dealing with interest that is compounded

Discounting Formula for Present Value: PV = FV/(1+i)ⁿ

Compounding Formula for Future Value: FV= PV(1+i)ⁿ

Note: When dealing with interest that is compounded in a different time period other than years, you will need to divide the interest rate by the number of periods and be sure that n specifies the correct time frame. For example, if interest is compounded monthly over a three year timeframe, then you will need to divide the interest rate by 12 to reflect a monthly interest rate and express n as 36 months (3 years x 12 months) instead of 3 years.

If you could buy a bond now and five years later sell it for $40,000, what would you be willing to buy it for, assuming an 8% discount rate and no other cash flows?

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