TVM04 - Present Value of a Single Sum – Savings Example
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
The present value is ($2,995)