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Question 5.5: Single-Period PV Suppose you need $400 to buy textbooks nex...

Single-Period PV

Suppose you need $400 to buy textbooks next year. You can earn 7 percent on your money. How much do you have to put up today?

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We need to know the PV of $400 in one year at 7 percent. Proceeding as in the previous example:
Present value × 1.07 = $400
We can now solve for the present value:
Present value = $400 × (1/1.07) = $373.83
Thus, $373.83 is the present value. Again, this just means that investing this amount for one year at 7 percent will give you a future value of $400.

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