 
Calculating the Present Value of a Future Lump Sum
The basic steps in calculating the present value of a future lump sum are as
follows:
 Enter the Payments/Year
 Enter the rest of the information you know
 Solve for the unknown.
Let's try it with a problem
Consider that you buy a $1000 US Savings Bond that will mature in five years and paid 8% interest per year. How much should you pay today for the bond?
First, let's see what we know
 We know that the bond will be worth $1000 in five years. That indicates that the future value (FV) of that bond is $1000.
 We know
that the number of years (xP/YR) is 5.
 We know that the annual interest rate is
8% (8 is the I/YR).
 Finally, we may assume that the periods per year is one
since we are not told it is monthly, quarterly, etc. (If the payments per year
would have been, for example, monthly, the problem would have read, ". . .
paid 8% per year, compounded monthly.")
Now let's compute the problem
 Enter the Payments/Year.
You first must type in the appropriate number (eg. monthly would be 12, quarterly would be 4, etc.), then push
the orange
SHIFT key
,
then the P/YR key.
In our problem, first we must enter the appropriate payments per year by pushing 1, then
push the orange
SHIFT key
,
then the P/YR key
.
 Enter the rest of the information you know.
The order of the next three steps is not important, but I recommend that
you follow across the financial tour of your calculator from left to right.
 If
you do, then the next step would be to enter in the proper number of
years. You first type the appropriate number, then push
the orange
SHIFT key
,
then the xP/YR
key.
In our problem, next we will enter the number of years by pushing 5, then
the orange
SHIFT key
,
then the xP/YR
key.
 Now, enter the appropriate interest rate per year. This is done by entering
the appropriate annual interest rate as a whole number, not as a decimal
(the calculator will convert it to decimal automatically), then pressing the
I/YR
key.
In our problem, now we will enter the interest rate per year by
pushing 8 and then pressing the I/YR
key.
 Next, enter the lump sum amount to be received in the future, then press
the FV
key.
In our problem, next we enter the Future Value by pressing 1000 and then the FV
key.
 Solve for the unknown.
Finally, all that is necessary is push the PV
key to compute the answer.
Correct Answer
The display then shows 680.58 if the display was set to show two
decimal places. Note that the answer is negative.
This indicates that the direction of the cash flow is out. (This is logical
if we will be getting $1000 in the future, we must pay $680.58 now.)
Would you like to review the mathematics of this
calculation?
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Copyright © 2005 Dr. Jerry D. Belloit
