Presentvaluesexample1 presentvaluesexample1

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This document was uploaded on 01/14/2014.

Ask a homework question - tutors are online