Single payment present worth
Uses underlying notion of compound
interest to determine the amount that we
must have now in order to have say
$1000.00 six years from now, assuming 5
percent rate of interest. Solving for P in
F
= P(1 + i)nwe get
P
= F __1___ (1 + i)nHere,
P
= $1000 __1___
(1 + 0.05)6
= $1000(0.7462) = $746.20 The factor, 0.7462, is referred to as the
Òsingle payment
present worthÓ factor
for 5 percent and 6 years (see
Table 1, next slide).
see
Table 1, next slide).