Question

Sharon wants to set aside funds to take an around the world cruise in 4 years. Sharon expects that she will need $26000 for her dream vacation. If she is able to earn 9% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?

Answer 1

The present value to be kept aside by Sharon to have sufficient funds will be $18,419.

What is present value?

The current value of any sum of money, which is certain to be gained in the future over compounded interest on such investment, is known as present value. Using given information, it can be calculated as,

$\rm Present\ Value= Future\ Value\ x\ \dfrac{1}{(1+r)^n}\\\\\rm Present\ Value= 26000\ x\ \dfrac{1}{(1+0.09)^4}\\\\\rm Present\ Value= \ 18419$

Hence, the present value of the annuity of $26000 in 4 years has been calculated above.

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