APPLY THE CONCEPTS: Present value of a single amount in the future As it is important to know what a current investment will yield at a point In the future, it is equally important to understand what investment would be reqUired today in order to yield a required future return. The following timeline displays what present investment is required in order to yield $8,000 three years from now, assuming annual compounding at 5%. Future Value: 58,000 1 l Year 1 Year 2 Year 3 Present Value: ? The most straightforward method for calculating the present value of a future amount is to use the Present Value Table. By multiplying the future amount by the appropriate figure from the table, one may adequately determine the present value. Instructions for using present value tables + Present Value of a Future Amount Table1 - Present Value of $1 at Compound Interest Period 5% 6% 7% 8% 9% 10% 1 1% 12% 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 2 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 3 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 4 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 5 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 6 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 8 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 10 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 11 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 12 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 13 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 14 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.20515 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 16 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 17 0.436 0.371 0.31?' 0.270 0.231 0.198 0.170 0.146 18 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 19 0.396 0.331 0.27?' 0.232 0.194 0.164 0.138 0.116 20 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 Using the previous table, enter the correct factor for three periods at 5%: Futu re Present x Factor : value value 53,000 x 0.864 ' J $6,912 You may want to own a home one day. If you are 20 years old and plan on buying a $700,000 house when you turn 30, how much will you have to invest today, assuming your investment yields an 8% annual return? 39:] Feedback ' Check My Work Use the Present Value table to look up the appropriate value for the number of compounding periods and the inlerest rate per period