Discounting (This is the same example used in Compouding just in reverse.) L1-2 Problem 1 If you have $105,000 in a savings account that earned 5% per year, compounded annually, how much did you put into the account a year ago? In this case, your money would have been in an account earning 5% interest for 1 year. FV $ 105,000.00 1 5% PV -=D5/(1+06) 3 So, you would have started with $100,000. 0 1 Problem 2 12 If you have $110,250 in a savings account that earned 5% per year, compounded annually, how much did you put into the account 2 years ago 13 Same as before, except your money would be in an account for 2 years, so you would need to do the process twice. 15 Yr 2 FV $ 110,250.00 Yr 2 FV $ 110,250.00 16 1 5% also, or-> 5% 17 Yr 1 FV 015/(14016) PV 15/(1+16)^? 18 PV