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Homework answers / question archive / Simple Interest Example: Find the present value of Solution P2,000 which is due at the end D = Fdt of 90 days at 5% simple = P2,000(
Simple Interest Example: Find the present value of Solution P2,000 which is due at the end D = Fdt of 90 days at 5% simple = P2,000(.05) (?) discount. = P25 Given: P = F - D F = P2,000 = P2,000 - 25 = P1,975 t = - = Alternative Solution P = F(1 - dt) d = .05 = P2000 [1 – 0.05))] = P1,975 1 4
Answer : To calculate the present value we need to adjust the discount amount for the period of 90 days to the future Value :
Discount = Future Value * Discount rate * time period
Future Value = 2000
Discount Rate = 0.05
Period = (90 / 360) = (1/4)
Discount = 2000 * 0.05 * (1 / 4)
= 25
Present Value = Future Value - Discount
= 2000 - 25
= 1975
