General Idea:
We need to make use of the below formula to find the present value.
[tex] PV=\frac{FV}{(1+\frac{r}{n})^{nt}} \\ \\ Where:\\ FV \; is \; Future\; Value\; of \; money\\ r \; is\; Annual\; rate\; of\; interest\\ t\; is\; number\; of\; years\\ n\; is\; Number\; of\; periods\; based\; on\; compounding \; frequency [/tex]
Applying the Concept:
We are given the below information:
[tex] FV= \$11,500\\ \\ t=5\; years\\ \\ r=4.5 \%\\ \\ n=2\; (because\; given\; compounded\; semi-annually) [/tex]
We need to substitute the above information in the formula to find the Present value.
[tex] PV=\frac{11500}{(1+\frac{0.045}{2})^{2 \times 5}} =\frac{11500}{(1+0.0225)^{10}} =\frac{11500}{1.0225^{10}} \\ \\ PV \approx \$9206 [/tex]
CONCLUSION:
The present value of $11,500 discounted back 5 years if the appropriate interest rate is 4.5%, compounded semiannually is approximately 9206 dollars
