# Presentvaluesexample1 presentvaluesexample1

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Unformatted text preview: (1.05)5 = 1276.28 5 N 5 I/Y 1000 PV CPT FV = ­1276.28 FIGURE 5.2 FIGURE 5.2 Interest ↑ → FV ↑ How to be a millionaire? How to be a millionaire? Source: Ross, Westerfield and Jordan (McGraw­Hill) Present Values Present Values How much do I have to invest today to have some amount in the future? FV = PV(1 + r)t Rearrange to solve for PV = FV / (1 + r)t When we talk about discounting, we mean finding the present value of some future amount. Present Values – Example 1 Present Values – Example 1 You want to begin saving for future education and you estimate that you will need \$150,000 in 17 years. If you feel confident that you can earn 8% per year, how much do you need to invest today? N = 17 I/Y = 8 FV = 150,000 CPT PV = ­40,540.34 (remember the sign convention) Present Values – Example 2 Present Values – Example 2 Your parents set up a trust fund for you 10 years ago that is now worth \$19,671.51. If the fund earned 7% per year, how much did your parents invest? N = 10 I/Y = 7 FV = 19,671.51 CPT PV...
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## This document was uploaded on 01/14/2014.

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