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Chapter 17: Q2. (page 369)

Suppose that you desire to get a lump sum payment of $100,000 two years from now. Rounded to full dollars, how many current dollars will you have to invest today at a 10 percent interest to accomplish your goal?

Short Answer

Expert verified

An amount of $82,645 needs to be invested today to obtain $100,000 after two years.

Presentvalue=A1+ini=RateofInteresti=10100i=0.1n=NumberofYearofInvestmentn=2A=AmountaftertwoyearsA=$100000PresentValue=1000001+0.12=1000001.12=1000001.21=$82644.6281=$82645

The present value will be $82,645.

Step by step solution

01

Step 1. Explanation

The money is to be invested today to get $100,000 after two years is also called present value.

The present value is calculated in the following manner:

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