This formula can be used in determining the present and future value of an investment asfollows. Future Value (FV) = Amount Today X Present Value (PV) = Future Value X b. Money and Real Interest Rate The scientific method assumes therefore that the interest rate used is the real interest rateand not the money interest rate. The real interest rate is the after tax interest rate while themoney interest rate is the before tax interest rate. The scientific method makes use of thereal interest rate asking for granted that inflation rate will be equal the tax rate. Sincenormally the value of good should only be inflated by the tax paid thereon. For example, the money interest rate is 20% and the tax rate is 30% the real interest ratewill be (1-0.30) (20%) = (0.70) (20%) = 14% . Scenario 1 Mr Filafa expects to receive ₦150,000 in five years‟ time. If Mr Filafa faces an interest rateof 20%, what is the present value of the ₦150,000?

Step 1: Identify the given values. The future value (FV) is ₦150,000. The interest rate (r) is 20% or 0.20. The number of years (n) is 5. Step 2: Use the present value formula. The formula for present value is: PV = (FV)/((1 + r)^n) Step 3: Substitute the values into the formula and calculate. PV = (₦150,000)/((1 + 0.20)^5) PV = (₦150,000)/((1.20)^5) PV = (₦150,000)/(2.48832) PV ≈ ₦60,281.90 The present value of ₦150,000 is approximately ₦60,281.90. ₦60,281.90 Send me the next one 📸