- Present Value Of Lump Sum:
- What does Lump Sum mean?
- It refers to maturity amount of a present value lump sum investment, or a one-time investment, after a specified number of years.
PV = FV / (1 + r) ^ t
- PV = present value of lump sum
- FV = future value of lump sum
- r = interest rate per period
- t = number of compounding periods
A person wants to purchase a house in two years. He expects that he would need to have $20,000 at that time to use as a down payment. The certificate of deposit pays 5% per year.
In this case, we know that the future value is $20,000 and time frame (2 years) and the interest rate (5% per year). Therefore, apply the above formula:-
- PV = 20,000 / (1.05) ^ 2 = 18,140.59
- Jun 11, 2018
- Tool Launched