Question

How much invested today will grow in the same amount of money in 25 years that $500 invested at the end of each year for the next 25 years will grow into given the annual rate of 6%?

Answer 1

First we will use a BA 2 plus Financial calculator to calculate the Future value of our periodic investments of $500-

N(Number of years) = 25

PMT(Investment per period) = $500

I/Y(Interest rate) = 6%

CMPT FV

Amount accumulated after 25 years = $27,432.256

To calculate the amount of investment to be made today that will grow in the same amount of money in 25 years as $500 per year, we will calculate the PV of the Amount accumulated after 25 years

PV = $27,432.256 / (1.06^25) = $6391.678