LUKE: So$,$ what is a present value, and why is it important to be able to calculate it$?$

LEXI: According to Dr$.$ Boudreaux, an asset's present or $q,$ discounted value is the current value of the cash flows that it will pay or receive in the future.

LUKE: Wait! Can you give me an example of when it would be appropriate to calculate a present value?

LEXI: Sure, but it might make more sense for you to identify such a situation. So$,$ tell me in which of the following two scenarios you would use a present value calculation, and then explain why that is so$.$

Scenario $1$: You would like to know how much you should place on deposit to have accumulated a certain amount of money by a specific future date.

Scenario $2$: You would like to know how much a given amount deposited today will grow into by a specific future date.

LUKE: Ummm. I think $q,$ scenario $2$ is the situation that requires the calculation of a present value.

The reason is that the amount to be placed on deposit is both $q,$ unknown and occurs $q,$ now, or at the present time

LEXI: Very good! So here's your next question: How is the present value of a single amount calculated?

LUKE: It can be calculated by rearranging the formula that is used in the calculation of a future value. To see this $...$

LEXI; Wait, wait, wait, Could you show me what you mean by writing it down?