Manually (without calculator) finding present value (PV)

CFA Level I Corporate Finance
#1

How to manually find Present value (PV) in following case:

Future value = 300,000
Discount rate = 12.5%
Period = 90 days

Assume 360 days in a year

#2

is the discounr rate an effective annual rate?
PV = 300,000 x (1.125)^(90/360)

is the discount rate an nominal rate
PV = 300,000 x [1 + (0.125 * 90/360) ]

#3

Thanks for reverting

If the discount rate is effective rate, as per your formula
PV = 300,000 x (1.125)^(90/360)
= 300,000 x 1.125 ^0.25
= 300,000 x 1.029 = 308960

Present value is more than Future value of 30,000

Where am I going wrong?

Also please let me know how to calculate value of 1.125 ^ 0.25 without using financial calculator.

#4

It should be dividing instead of multiplying.

And why on earth would you NOT want to use a calculator to calculate 1.125 to the power of 0.25??? :-1:

#5

is the discounr rate an effective annual rate?
PV = 300,000 / (1.125)^(90/360)

is the discount rate an nominal rate
PV = 300,000 / [1 + (0.125 * 90/360) ]

You will need log tables to do x^(1/4) without the calculator

#6

Thanks for your reply

Regards

#7

Just to know the working

Thanks for responding

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