Suppose you are depositing an amount today in an account that earns 5% interest,

compounded annually. If your goal is to have $5,000 in the account at the end of six
years, how much must you deposit in the account today?
Given:
𝑃𝑉=𝐴(1+𝑖) ^n
A= $5,000
i= 0.05/1= 0.05
n= 6x1=6
Solution:
PV= A/ (1+i) ^n
PV= $5,000 / (1+0.05) ^6
PV= $5,000 / (1.05) ^6
PV= $5,000 / (1.3401)
PV= $3,731.08 (Present Value)

1. You have just won a $1 million lottery. This new lottery, however, will pay out the award
of 60 years from today. What is the present value of your award based on a 16% interest
rate?
Given:
𝑃𝑉=𝐴(1+𝑖) ^n
A= $1,000,000
i= 16% or 0.16
n= 60
Solution:
PV= A/ (1+i) ^n
PV= $1,000,000 / (1+0.16) ^60
PV= $1,000,000 / (1.16) ^60
PV=$135.68 (Present Value)
2. Mary and Paul have $2,000 to invest. The CD is paying 1.85% compounded semi-
annually. Assuming the rates will not change, how much will their investment be worth
in four years?
Given:
A=P(1+i) ^n
P= $2,000
i= 1.85% or 0.0185 / 2= 0.00925
n= 4x2= 8
Solution:
A = $2,000 (1+0.00925) ^8
A = $2,000 (1.00925) ^8
A = $2,000 (1.0764)
A = $2,152.88(Future Value)

3. Mary and Paul have $2,000 to invest. The CD is paying 1.85% compounded semi-
annually. Assuming the rates will not change, how much will their investment be worth
in 5 years?
Given:
A=P(1+i) ^n
P= $2,000
i= 1.85% or 0.0185 / 2= 0.00925
n= 5x2= 10
Solution:
A = $2,000 (1+0.00925) ^10
A = $2,000 (1.00925) ^10
A = $2,000 (1.0964)
A = $2,192.89 (Future Value)