1. Find Present value C = ?
Interest Rate i = 10%, Time n = 3 Year, Future value FV = 1300,
for Present value using Simple Interest method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=3` years (Number of periods)
`FV=1300` (Future value)
Now, Future value (Simple Interest) formula is
`FV=C*(1+i*n)`
`:.1300=C*(1+0.1*3)`
`:.1300=C*(1+0.3)`
`:.1300=C*(1.3)`
`:.C=(1300)/(1.3)`
`:.C=1000`
2. Find Present value C = ?
Interest Rate i = 10%, Time n = 2 Year, Future value FV = 6000,
for Present value using Simple Interest method
Solution:
`i=10%=0.1` per year (Interest rate)
`n=2` years (Number of periods)
`FV=6000` (Future value)
Now, Future value (Simple Interest) formula is
`FV=C*(1+i*n)`
`:.6000=C*(1+0.1*2)`
`:.6000=C*(1+0.2)`
`:.6000=C*(1.2)`
`:.C=(6000)/(1.2)`
`:.C=5000`
This material is intended as a summary. Use your textbook for detail explanation.
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