1. Find Present value factor for Interest rate i = 10%, Compounded (n) = 3, using Compound Interest method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
Present value factor
`PVF=1/(1+i)^n=(1+i)^-n`
`=(1+0.1)^-3`
`=(1.1)^-3`
`=0.7513`
2. Find Present value factor for Interest rate i = 5%, Compounded (n) = 5, using Compound Interest method
Solution:
`i=5%=0.05` per year (Interest rate)
`n=5` years (Number of periods)
Present value factor
`PVF=1/(1+i)^n=(1+i)^-n`
`=(1+0.05)^-5`
`=(1.05)^-5`
`=0.7835`
This material is intended as a summary. Use your textbook for detail explanation.
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