Question

Marshall has received an inheritance and wants to invest a sum of money today that will yield $4,300 at the end of each of the next 10 years. Assuming he can earn an interest rate of 5% compounded annually, how much of his inheritance must he invest today

Answer 1

Answer:

$2,639.83  

Explanation:

The value expected in the next 10 years is known as the future value while the amount to be invested today is the present value amount, hence, using the formula below which relates the present value to the future value, we can determine the present value as appropriate:

PV=FV/(1+r)^n

PV=present value=the unknown

FV=future value=$4,300

r=rate of return=5%

n=number of years that investment would last =10

PV=$4,300/(1+5%)^10

PV=$4,300/1.05^10

PV=$4,300/1.62889463

PV=$2,639.83