Question

You expect to receive a payment of $1,000 from a trust fund in 18 years. The annual interest rate is 5%.

Part 1

What is the present value of that amount?

Part 2

If you invest the $1,000 at the same interest rate for another 18 years when you receive it in 18 years, what will be the future value?

Answer 1

Part 1

Present Value of the amount

=

Future Value *(1+i)^-n

Where,

=

$       1,000

*(1+0.05)^-18

i

Interest rate

5%

=

$     415.52

n

Life

18

Part 2

Future Value

=

Present Value *(1+i)^n

Where,

=

$       1,000

*(1+0.05)^18

i

5%

=

$ 2,406.62

n

18