1. Find Present value C = ?
Interest Rate i = 10%, Time n = 3 Year, Future value FV = 1331,
Interest compounded = Year (1/year)
for Present value using Compound Interest method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
`FV=1331` (Future value)
Now, Future value (Compound Interest) formula is
`FV=C*(1+i)^n`
`:.1331=C*(1+0.1)^3`
`:.1331=C*(1.1)^3`
`:.1331=C*(1.33)`
`:.C=1331/(1.33)`
`:.C=1000`
2. Find Present value C = ?
Interest Rate i = 10%, Time n = 2 Year, Future value FV = 6050,
Interest compounded = Year (1/year)
for Present value using Compound Interest method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=2` years (Number of periods)
`FV=6050` (Future value)
Now, Future value (Compound Interest) formula is
`FV=C*(1+i)^n`
`:.6050=C*(1+0.1)^2`
`:.6050=C*(1.1)^2`
`:.6050=C*(1.21)`
`:.C=6050/(1.21)`
`:.C=5000`
This material is intended as a summary. Use your textbook for detail explanation.
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