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Glossary
The Present Value of Your Dreams

#### You Try It

Come and Sail Away With Me…

When you retire, right after you celebrate with all of your friends at your pizza party, you think you'd like to sail around the world. You can get a used yacht, today, for around \$100,000. At a 3% inflation rate, a used yacht in 50 years is likely to cost you about \$438,000.

If you find an investment that will pay you 8% interest for 50 years, how much would you need to put in the bank today, in order to have \$438,000 by the time you retire?

Using the calculator above, choose the present value formula from the dropdown menu (it's second in the list). Input the appropriate values into the formula. Click Calculate.

Which of the following is the correct answer?

 A. \$22,810.71 B. \$2,132.12 C. \$9,338.70 D. \$99,919.90
Here's something else to ponder…

You have the \$10,000 your grandma gave you… but not really. You put \$2,600 in savings for your future Lu Lu. Given that, you only have \$7,400 left. Hmmm. You need \$9,338.70 for your investment for the yacht. What can you do? Choose the option you think is best.

 A. Forego Lu Lu. You want her badly, but she is an opportunity cost you are willing to accept in order to have enough money to invest for the yacht. One dream clearly outweighs another. B. Keep the money for Lu Lu in savings. With your \$7,400, you are only missing your investment goal by just over \$2,500. You can find a way to make up the difference. Both dreams are worth working toward.