Lesson
3:
Compound
Interest
(Present
Value)
Part
A
—
Définitions/Introduction
Present
Value:
the
principal
that
would
have
to
be
invested
or
borrowed
NOW,
today,
to
get
a
specific
future
value
in
a
certain
amount
of
time
When
people
invest
money
they
have
a
goal
for
which
they
want
a
specific
amount
of
money.
(
ex.
for
a
trip,
education,
buying
a
house
or
car
etc.)
Part
B
—
Formula
to
Calculate
Present
Value
We
can
calculate
the
present
value
that
will
result
in
a
specific
amount
by
using
another
form
of
the
formula
A
=
P(1
+
i)n.
We
just
isolate
for
P,
but
we
use
PV,
present
value,
instead
of
P,
since
P
is
used
for
principal.
Therefore
to
calculate
present
value
we
use:
PV
=
—A_
~
R
PV
=AQ1+i)"
(1+1)
Where:
PV
is
the
present
value
A
is
the
accumulated
amount
i
is
the
interest
rate
per
compounding
period
n
is
the
number
of
compounding
periods
Part
C
—
Examples
Example
1:
Determine
the
amount
of
money
that
must
be
invested
today
at
5%
per
annum,
compounded
semi-annually
in
order
to
have
$1
000
available
6
years
from
now.