Question

Suppose that you desire to get a lump-sum payment of $100,000 three years from now.

Instructions: Round your answer to the nearest dollar.

How many current dollars will you have to invest today at 10 percent interest to accomplish your goal? $.

Answer 1

Consider the given problem here, let’s assume that the person have to invest “$X” today at 10% rate of return.

So, the person will get exactly “$100,000” after 3 years, which implied the following relation should hold good.

=> $X*(1+10%)^3 = $100,000, => $X*(1.1)^3 = $100,000, => $X = $100,000/(1.1)^3 = $100,000/1.331.

=> $X = $100,000/1.331 = $75,131.48, => $X = $75,131.48.

So, here the person have to invest exactly “$X = $75,131.48” to get “$100,000” after 3 years latter from now.