Question

Suppose you inherit $300,000 today and you decide to invest that money in a money market account. To build up your savings for your retirement, you decide to make yearly deposits of $20,000 for 10 years into that same account. However, you can only start your yearly deposits two years from now. What is the NPV of this cash flow, assuming a return of 5% a year?

Answer 1

Money you have = $300,000

Yearly deposit of $20,000 for 10 years staring after 2 years

Rate of Interest = 5%

Net present value of cash flow can be calculated as: [Money Saved / (1 + Rate of Interest)^^Year]

Year	Saving Amount	Present Worth of Saving
3	20000	17276.75
4	20000	16454.05
5	20000	15670.52
6	20000	14924.31
7	20000	14213.63
8	20000	13536.79
9	20000	12892.18
10	20000	12278.27
11	20000	11693.59
12	20000	11136.75
		140,076.82

Net Present Value = Inherited Amount + Present Value of Saving = 300,000 + 140,076.82 = 440,076.82