Answer:
Explanation:
Present value is the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.
It can be calculated using future value formula below
A = P(1+r/100)^n
where
A = Future value
P = Present value
r = Rate of interest
n = time period
Present Value = Value at Year 1 + Value at Year 4
Calculating Value at Year 1
A = $5,500
r = 8%
n = 1
From A = P(1+r/100)^n ; Make P the subject of formula
P = A ÷ (1 + r/100)^n
Substitute in values
P = $5,500 ÷ (1 + 8/100)^1
P = $5,500 ÷ (1 + 0.08)
P = $5,500/1.08
P = $5092.5925926
P = $5092.59 ----
Present Value at Year 1 = $5092.59
Calculating Value at Year 4
A = $5,000
r = 8%
n = 1
From A = P(1+r/100)^n ; Make P the subject of formula
P = A ÷ (1 + r/100)^n
Substitute in values
P = $5,000 ÷ (1 + 8/100)⁴
P = $5,000 ÷ (1 + 0.08)⁴
P = $5,000/1.08⁴
P = $3675.149263982267
P = $3675.15 ----
Present Value at Year 4 = $3675.15
Present Value = Value at Year 1 + Value at Year 4
Substitute each value
Present Value = $5092.59 + $3675.15
Present Value = $8,767.74
