More generally, the present value of any payment to be received n periods from now = Equation 13.4 P0 = Pn n (1+r) Suppose, for example, that your Aunt Carmen offers you the option of $1,000 now or $15,000 in 30 years We can use Equation 13.4 to help you decide which sum to take The present value of $15,000 to be received in 30 years, assuming an interest rate of 10%, is: P0 = P30 = 30 (1+r) $15,000 = $859.63 30 (1+0.10) Assuming that you could earn that 10% return with certainty, you would be better off taking Aunt Carmen’s $1,000 now; it is greater than the present value, at an interest rate of 10%, of the $15,000 she would give you in 30 years The $1,000 she gives you now, assuming an interest rate of 10%, in 30 years will grow to: $1,000(1+0.10)30=$17,449.40 The present value of some future payment depends on three things The Size of the Payment Itself The bigger the future payment, the greater its present value The Length of the Period Until Payment The present value depends on how long a period will elapse before the payment is made The present Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 683