Single-Payment Present-Worth (P/F)
The single-payment compound-amount formula (just discussed) calculates the unknown future value of some known present amount (F given P). The single-payment present-worth turns this around and calculates the unknown present value needed to return a known future value (P given F) at the interest rate and term. If you know that a certain interest rate is available and you know how much money you want to end up with over some period of time, this formula tells you how much to invest now. The generic cash-flow diagram for this situation is shown in Figure 5.5.
Figure 5.5. The generic cash-flow diagram for single-payment present-worth (lender's view)
We'll use a variation of Bee Co. from above. This time, it's Evans ...
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