Saturday, July 7, 2012

Calculate Present Value of Security



How to calculate the present value of a security held for investment purposes:

What is the present value of an investment  security that will pay $5,000 in 20 years if securities of equal risk available on the market pay 7% annually?  


Accounting 

Future Value   =          $5,000
Years               =          20
Discount %      =          7%

Use the following equation to calculate present value:

Present Value =          Future Value X (Present Value Interest Factor (PVIF) )
                        =          $5,000             X (1/1.07) ^ 20 years
                        =          $5,000 X 0.258
                        =          $1,290

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