Question

Can someone explain how I solve for PV=F*(P|F,i,n)+A*(P|A,i,n) step by step?

Answer 1

ANSWER:

PV = F * (P/F,I,N) + A * (P/A,I,N)

EXAMPLE:

WHEN WE MULTIPLY F * P/F , F GETS CANCELLED AND P (PRESENT VALUE IS FOUND OUT AT 10% AND N AT 10 YEARS) , SIMILARLY WHEN WE MULTIPLY A * P/A , A GETS CANCELLED AND P (PRESENT VALUE IS FOUND OUT AT 10% AND N AT 10 YEARS)

LETS ASSUME THAT THE I = 10% AND N = 10%

AND THE VALUE OF F = 100,000 AND A = 10,000

PV = 100,000 * (P/F,10%,10) + 10,000 * ( P/A,10%,10)

WE WILL NOW LOOK THE VALUES OF P/F AT 10% AT 10 YEARS AND P/A AT 10% AT 10 YEARS IN THE COMPOUNDING FACTOR TABLES.

PV = 100,000 * 0.3855 + 10,000 * 6.145

PV = 38,550 + 61,450

PV = 100,000

SO THIS WAY THE PRESENT VALUE COMES TO $100,000