The second plank options are (now, or a the present time) or (later, or in the future)

Devin and Noah are walking after class between the library and the best pizzeria near campus. They're discussing Dr. Phillips's latest financial management lecture, which addressed the concept of present value and the process for calculating it. In anticipation of tomorrow's quiz, they've decided to review their lecture notes and the textbook materials and then practice one or two problems. Complete the missing information in the conversation that follows. Round your final answer to all computations to two decimal places. However, if you compute any interest factors as an intermediate step in your calculations, round them to four decimal places. Noah So, what is a present value, and why is it important to be able to calculate it? value is the current value of the Devin According to Dr. Phillips, an asset's present or discounted cash flows that it will pay or receive in the future. Noah Wait! Can you give me an example of when it would be appropriate to calculate a present value? Devin 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. Noah Ummm. I think scenario 1 is the situation that requires the calculation of a present value. The reason is that the amount to be placed on deposit is both and occurs unknown known The Calculation of a Future Value Future Value = Present Value Interest factor Next, let's rearrange the equation to isolate the present value (PV) term by dividing both sides of the equation by the interest factor . Then, we'll simply rewrite the equation to put the unknown variable, the PV term, on the left-hand side of the equation: FV = PV X (1 + I)N 1 FV x PV (1 + I)N 1 PV = FV (1 + I)N So, does this make sense? We've rearranged the future value equation to solve for the present value. Also, notice that the present value interest factor is the of the future value interest factor. This means that you don't necessarily need two reciprocal st factor tables for the inverse single cash flow; you can make do using either simply thL Je table or the future value table-so long as you use it correctly. Homework Problem Sarah wants to reduce the cost of graduate school by starting a savings plan today. As a sophomore, she has estimated that she has three years to accumulate the $22,500 that she needs to help cover some of her projected expenses. The account she would open would earn 8% per year compounded annually. So how much would she have to deposit today to accumulate $22,500 in three years? Or, stated differently, what is the value of $22,500? (Note: Round your answer to the nearest whole dollar.) future present $17,861 so that she would have the desired $22,500 I think that Sarah would have to deposit at the end of three years. Is that what you got when you solved the problem? Noah Yes it is! I think we've got a good start on getting ready for Dr. Phillips's next quiz