Question

You have been offered an investment that will pay you a lump sum of $30,000 25 years from today, along with a payment of $1,000 per year for 25 years starting one year from today. How much are you willing to invest today to have this investment in your portfolio assuming you wish to earn a rate of 6 percent compounded annually

Answer 1

$5,793.40

Step-by-step explanation:

The amount you invest is called the Principle Value (PV). Therefore the question requires us to determine the Principle Amount that will pay you a lump sum of $30,000 25 years from today.

FV = $30,000

N = 25

PMT = ($1,000)

P/Yr = 1

I = 6 %

PV = ?

Using a Financial Calculator to input the values as shown above, the Principle Value (PV) is calculated as $5,793.40.

Therefore, you will be willing to invest $5,793.40 today to have this investment in your portfolio