Assume that you are going to receive $50,000 in 10 years. The current market rate of interest is 4%.
a. Using the present value of $1 table in Exhibit 5, determine the present value of this amount compounded annually.
b. Why is the present value less than the $50,000 to be received in the future?
Exhibit 5: Partial Present Value of an Annuity Table

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Present Value of an Annuity of $1 at Compound Interest 6% 0.943 1.833 2.673 3.465 4212 4.917 5.582 6.210 6.802 .360 10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5./59 6.145 12% 0893 1690 2.402 3.037 3.605 15% 0.870 1.626 2.283 2.855 3.353 3.785 4.160 4.487 Year 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4564 4968 5328 650 10 5.019