OpenWindows User's Guide

## Pv: Present Value

Use Pv to determine the present value of an investment. The Calculator computes the present value based on a series of equal payments discounted at a periodic interest rate over the number of periods in the term. The following information is retrieved from the memory registers:

• Register 0: Amount of each payment

• Register 1: Periodic interest rate

• Register 2: Term, or number of payments

### Pv Example:

You have just won a million dollars. The prize is awarded in 20 annual payments of \$50,000 each (a total of \$1,000,000 over 20 years). Annual payments are received at the end of each year. You are given the option of receiving a single lump-sum payment of \$400,000 instead of the million dollars annuity. You want to find out which option is worth more in today's dollars.

If you were to accept the annual payments of \$50,000, you assume that you would invest the money at a rate of 9%, compounded annually.

Memory register usage:

Register 0: 50000 (periodic payment). Register 1: 0.09 (periodic interest rate is 9%) Register 2: 20 (term)

Clicking SELECT on Pv returns a value of 456427.28, which tells you that the \$1,000,000 paid over 20 years is worth \$456,427 in present dollars. Based on your assumptions, the lump-sum payment of \$400,000 is worth less than the million-dollar ordinary annuity, in present dollars (before taxes).