Using the PV Function A husband and wife want to accumulate an investment worth

Question

Using the PV Function A husband and wife want to accumulate an investment worth $200,000 by the end of year 18. The money will be needed to send their baby daughter to college. How much must they invest now to accumulate their goal assuming they can earn an average of 7% per year? Future value $200,000 Rate 7% Years 18 Present value <== Use the PV function to determine how much to invest today. What if they can invest $2,000 per year for each of the 18 years, how much would they need to invest today? Present value <== Use the PV function to determine how much to invest today. Using the PV Function A husband and wife want to accumulate an investment worth $200,000 by the end of year 18. The money will be needed to send their baby daughter to college. How much must they invest now to accumulate their goal assuming they can earn an average of 7% per year? Future value $200,000 Rate 7% Years 18 Present value <== Use the PV function to determine how much to invest today. What if they can invest $2,000 per year for each of the 18 years, how much would they need to invest today? Present value <== Use the PV function to determine how much to invest today.

Explanation / Answer

1. Calculation of amount to be invested today to accumulate an investment worth $200,000 by the end of year 18.

FV = PV ( FVAF 7%, 18 Years)

$ 2,00,000 = PV X 10.0591

PV = $ 2,00,000 / 10.0591

PV = $ 19,882.49

2. Future Value of an annuity if $ 2000 is invested in each year

FV = PV X ( FVAF 7%, 18 years)

= $ 2000 X 10.0591

= $ 20,118

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