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0 The present value of a cash now due N years in the future is the amount that if it were on hand today, would grow to equal the given future amount. Finding present values is called discounting. This is the reverse of compounding-If you know the pv, you can compound to find the Vir you know the FV, you can discount to find the PV. Similarly, the present value of an annuity, PVA, is the sum of the present value of each oture annuity payment. One way to derive the present value of an ordinary annuity is to use the formula approach PWAN + MI ++ - PMTX Another option is to find PVAN using a financial calculator. For example, suppose you want to find the present value of three annuity payments of $100 and an interest rate of 5%. In this case, the number of periods (N) is 3, the Interest rate (t/Y) is 5%, the payment (PMT) is $100, and the future value (FV) is $0. Now you are ready to use your calculator to mild the PVA y by entering values for N, 1X, PMT, and FV and then pressing the PV key. Note: Make sure your calculator is set to END mode) 3 5 -$100 $0 Input Keystroke Output N I/Y PV PMT FV $272.32 In this case, the present value of this ordinary annuity is $272.32. If you know the future value (FV), you can compound it to find the present value (PV) True False

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