Suppose that you desire to get a lumpsum payment of 100000 t

Suppose that you desire to get a lump-sum payment of $100,000 three years from now.

Instructions: Round your answer to the nearest dollar.

How many current dollars will you have to invest today at 12 percent interest to accomplish your goal?

Solution

To find the present value of $100,000 in three years at an interest of 12%

The used formula

CV = X / (1 + i)ⁿ

where,

x = amount of money received in future

i = interest rate

n = number of years

on substitution:

100,000 = CV(1 + 12)³

CV = 100,000 / 1.12³

=$71,178.02

So We have to invest $71,178 at 12% to get the lumo-sum payment of $100,000.