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(

Finance Jan 17, 2021

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

Expert Solution

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

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