Question

If you were asked the question “How much would I need to have deposited three years ago at 12% compounded annually to have $1,000 today?”, which table would you use to find the answer?

Answer 1

Concept of present value :

Future value (FV) = $ 1,000

Rate (r) = 10%

Number of years (n) = 3 years

Present value (PV) = ?

FV = PV (1+r)n

$ 1000 = PV (1+0.12)3

$ 1000 = PV (1.4049)

PV = $ 1000 / (1.4049)

Present value = $ 711.80

$ 711.80 you need to have deposited three years ago at 12% compounded annually to have $ 1000 today.

Check :

Year	Beginning value	Interest @ 12%	Ending value (Beginning value + interest)
1	711.80	85.42	797.22
2	797.22	95.66	892.88
3	892.88	107.14	1000

3 years end value approximately $ 1000.