Question

To assess the current value of a lump-sum retirement benefit that will be received in 10 years, use the __________ calculation.

Answer 1

To assess the current value of a lump-sum retirement benefit that will be received in 10 years, use the present value of a single amount calculation.

The Present value of a single amount refers to a whole amount receivable in future which has a specified interest rate. This definition is appropriate for the lump-sum retirement benefit that will be received in 10 years which also has  a specific interest rate. Hence to know the current value of that sum the present value of a single amount calculation can be used.

The importance of this method is the knowledge that the future money will be more valuable than the present.

Present value can be calculated by,  

                     Present value = Future value /  $(1+i)^n$

where 'i' is the interest rate  and 'n' the number of years.  

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