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Unit 4 - Lesson 5: Present and Future ValuePresent value is the value of an ____________________ or loan on a __________ before the end of the term.Future value is the value of an investment or loan at the _______ of the term.When we talk about loans, you may hear the words ______________ and ________________. A ______________ is a person or organization that lends money. They often ______________ the value of the loan by calculating the present value at current interest rates. The formula for present value is:P=A1+i-nWhere…P is the principal, or present valueA is the accumulated amount or future valuei is the interest rate PER compounding periodn is the number of compounding periods*Notice that this is the same formula as the compound interest one, just now rearranged to solve for P instead of A. *Also, be careful, the exponent, n, is now NEGATIVE Make sure you are still using this conversion chart to find i and pounding PeriodMeaningInterest rate, iTerm, nAnnuallyOnce per yearUnchangedNumber of yearsSemi-annuallyTwice per yearRate divided by 2Number of years x 2QuarterlyFour times per yearRate divided by 4Number of years x 4MonthlyTwelve times per yearRate divided by 12Number of years x 12Example 1: InvestmentCary wants to invest enough money today to have $3200 for tuition when he goes to college in two years. If he invests his money at 6% per year, compounded monthly, how much does he need to invest?Example 2: Credit DebtJasmine has a loan for $5000 that is due in four years. She wants to pay off her debt early. The creditor is willing to discount the loan at an interest rate of 8% per year, compounded semi-annually. How much would the creditor be willing to accept today? ................
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