RatedrillPresent value of a lump sum
A time value of money problem from Ratedrill. Solve it with one answer box, with fresh numbers on every attempt and the formula, calculator keystrokes and Excel version in the worked answer, and it is checked the moment you submit.
The task
You will need $6,000 in 25 years for a down payment. If your savings earn 3.25% per year, compounded annually, how much must you deposit today to have exactly that amount?
What this problem teaches
The formula: PV = FV / (1 + r)^n. Set P/Y = C/Y = 1, so I/Y is the rate per period. Cash you pay out is negative and cash you receive is positive. The calculator shows PV as negative because it is money you put in; enter the amount as a positive number.
A hint if you get stuck
Discount the future amount back to today: PV = FV / (1 + r)^n.
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