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7 June, 17:59

Present value calculations The present value or "PV function" in Excel is used to calculate the current value of future payments. Consider this example: Suppose your uncle sends you a $10,000 certificate of deposit in your name which will earn 4% interest for the investment period. Under the terms of his gift, you can withdraw the funds after 4 years on the day of your graduation. Use Excel functions to calculate the value of the amount your uncle deposited today to have $10,000 after you graduate. (Note: The certificate of deposit calculates and pays any earned interest at the beginning of each year.)

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  1. 7 June, 18:42
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    PV = $8,548.04

    Explanation:

    Giving the following information:

    Final value = $10,000

    n = 4 years

    i = 4% compounded annually.

    We need to use the following formula:

    PV = FV / (1+i) ^n

    PV = 10,000 / (1+0.04) ^4

    PV = $8,548.04

    Your uncle needs to deposit $8,548.04 today in order to have $10,000 in four years.
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