TVM04 - Present Value of a Single Sum – Savings Example

Audio Transcript

This is a present value of a single sum problem.

Assume that your dad decides to give you $4,000 for a trip to Australia when you graduate from college four years from now. He proposes to finance a trip by investing a sum of money now at 7.5% compound interest that will provide you with the $4,000 upon your graduation. What amount must he invest today?

First, plug in the known values into the appropriate cells:

The future value – FV – is $4,000

The interest rate – Rate – is 7.5%

The number of periods – NPER – is 4

The unknown – present value – PV is determined by

Going to the formulas tab, look for the PV function.

The function wizard pops up

Select FV,

Select Rate,

Select NPER

Hit OK

The present value is ($2,995)