FV= (1 + )

^{}

CALCULATE
CLEAR

Enter your variable into the fields above and click Calculate to solve.PV= [1/(1 + )

^{}]

CALCULATE
CLEAR

Guest User

Glossary

The Present Value of Your Dreams

Come and Sail Away With Me… |
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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, |

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?

That's incorrect. If this is the answer you received, then you calculated the present value of $100,000 instead of $438,000. Additionally, you used the inflation rate of .03, instead of the interest rate of .08. Here is the equation you solved:

PV=100,000 [1/(1+.03)^{50}]

Here is the equation you should have solved:

PV=438,000 [1/(1+.08)^{50}]

That's incorrect. If this is the answer you received, then you calculated the present value of $100,000 instead of $438,000. Here is the equation you solved:

PV=100,000 [1/(1+.08)^{50}]

Here is the equation you should have solved:

PV=438,000 [1/(1+.08)^{50}]

That's correct! If this is the answer you received, then you calculated the present value of $438,000, fifty years from now, at 8% interest. Here is the equation you solved:

PV=438,000 [1/(1+.08)^{50}]

That's incorrect. If this is the answer you received, then you calculated the present value of $438,000 at the inflation rate (3%) instead of the interest rate (8%). Here is the equation you solved:

PV=438,000[1/(1+.03)^{50}]

Here is the equation you should have solved:

PV=438,000 [1/(1+.08)^{50}]

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.

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.

That's correct! Actually, neither of these answers is right or wrong; it's
just about you deciding which you would rather have. What is more important
to you? Would you rather your opportunity cost be Lu Lu or do you want
to have Lu Lu and give up having the yacht as quickly as you want it?
Granted, you may not give a hoot about a dog named Lu Lu or a yacht on
the sea. The point is realizing that many of the financial decisions
you'll make will present multiple options from which to choose. What
you choose simply depends on what you want and what you are willing to
give up.