5. Introduction to the present value of money Aa Aa Under the concepts of the time value of money, you can determine the current, or present, value of a cash receipt or payment that will occur at some specified time in the future, given a specified rate of interest. This technique can be used to calculate the present value of a single or a series of future receipts or payments. Jordan and Megan are walking after class between the library and the best pizzeria near campus. They're discussing Dr. Smith's latest financial management lecture, which addressed the concept of present value and the process for calculating it. In anticipation of tomorrow's quiz, they've decided to review their lecture notes and the textbook materials and then practice one or two problems. Complete the missing information in the conversation that follows Round your final answer to all computations to two decimal places. However, if you compute any interest factors as an intermediate step in your calculations, round them to four decimal places Megan So, what is a present value, and why is it important to be able to calculate it? Jordan According to Dr. Smith, an asset's present or value is the current value of the cash flows that it will pay or receive in the fu compounded discounted Megan Wait! Can you give me an example of when it would be appropriate to calculate a present value? Jordan Sure, but it might make more sense for you to identify such a situation. So, tell me in which of the following two scenarios you would use a present value calculation, and then explain why that is SO Scenario 1: You would like to know how much you should place on deposit to have accumulated a certain amount of money by a specific future date Scenario 2: You would like to know how much a given amount deposited today will grow into by a specific future date Megan Ummm. I think is the situation that requires the calculation of a present value The reason is that the amount to be placed on deposit is both and occurs Jordan Very good! So here's your next question: How is the present value of a single amount calculated? It can be calculated by rearranging the formula that is used in the calculation of a future value. To Megan see this Jordan Wait, wait, wait. Could you show me what you mean by writing it down? Here is a sheet of paper, show me how to rearrange the future value formula to solve for a present value