In this video we discuss how to convert the future value of money to the present value of money. We go through the formula to convert FV to PV and show a few examples
Transcript/notes
If we are told that an investment will be worth $108.84 in 2 years, which is the future value, the annual rate is 8%, and it is compounded semi-annually, so, twice per year, what is the present value of the investment?
Here is the present value formula and all of the definitions of all of the variables. So, we plug into the formula, and we have present value equals, $108.84 divided by the quantity, 1 plus .08, the decimal value of 8%, divided by 2, raised to the 2 times 2.
I have done the calculations on the screen, and we get present value equals, $93.04 rounded off.
Here are a couple more examples of converting future value to present value.