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Roy Gross is considering an investment that pays 20% annually. How much will he have to invest...

Question:

Roy Gross is considering an investment that pays 20% annually.

How much will he have to invest today so that the investment will be worth a million dollars in 28 years?

Present Value:

An investor invests a certain amount today known as present value and expects that amount to grow at a specific rate of interest over a period of time to meet certain financial requirements in the future.

Answer and Explanation:


The present value formula is as below:

{eq}\boldsymbol{PV} = \displaystyle \boldsymbol{\frac{FV}{(1+r)^n}} {/eq}

where,

  • PV - Present value = to be calculated
  • FV - Future value = $1,000,000
  • r - rate of interest = 20% or 0.20
  • n - number of periods = 28 years

{eq}\boldsymbol{PV} = \displaystyle {\frac{1,000,000}{(1+0.20)^{28}}} {/eq}

{eq}\boldsymbol{PV} = \boldsymbol\$6,066.32 {/eq}


Therefore, Roy Gross has to invest $6,066.32 today to have a million dollars in 28 years.


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
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