Question

If I will have a lump sum of $366,422 in 6 years, how do I calculate the present value of my investment, assuming it will earn interest at the rate of 4.18 percent compounded annually? In other words, what is the equivalent today of $366,422 payable as a lump sum 6 years in the future? Round the answer to two decimal places.

Answer 1

The present value of a future lump sum of $366,422 receivable in 6 years at a 4.18% interest rate is approximately $287,200.57. This is calculated using the present value formula, taking into account the interest rate and the number of years until the lump sum is received.

Step-by-step explanation:

To calculate the present value of a $366,422 lump sum receivable in 6 years with an interest rate of 4.18% compounded annually, you use the present value formula: Present Value (PV) = Future Value (FV) / (1 + r)^n, where r is the annual interest rate and n is the number of years until payment. In this case, PV = $366,422 / (1 + 0.0418)^6.

Performing the calculation gives us: PV = $366,422 / (1.0418)^6 = $366,422 / 1.27628364 ≈ $287,200.57. Therefore, the present value of the $366,422, which will be received in 6 years, is approximately $287,200.57 when rounded to two decimal places.