Joe will receive $175,000 in 50 years. His friends are jealous of him. What is his pot of gold...

Question:

Joe will receive $175,000 in 50 years. His friends are jealous of him. What is his pot of gold worth today if the alternative investment rate is 14%?

Time value of money:

Time value of money refers to the theory which states the value of money with the passage of time. As per time value of money, monetary value of a dollar decreases as time passes.

Answer and Explanation:

As per time value of money,

Present value = Future value / (1 + Rate)^Number of years

Here,

Present value = Value of investment today

Future value = $175,000.00

Number of years = 50

Rate = 14% = 0.14

So,

Value of the amount to be received today
= 175,000 / 1.14^50
= $249.92


Learn more about this topic:

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How to Calculate Present Value of an Investment: Formula & Examples

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 15
42K

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