Present value of an amount

Question

John and Marie’s son Sean is saving a deposit for a house and as they would like to help him, so they have decided to give him his funds early (before he turns 30). They want to be fair and ensure he gets the same amount of money as their daughter Michelle which will be $71,165.59 at age 30.

What is the present value of this amount if Sean was to receive it when he turns 30? He is currently 26.

I.e. what is the Present Value of that amount if received in 4 years’ time at an interest rate of 4% pa compounding?

I need to use the finance calculator on arachnoid.com to calculate this answer but I am not sure what to put into the different areas. I would appreciate some help with this.

Answer 1

First, consider the present value formula.

PV = FV x (1/(1+r)^t)

The future value in this problem is 71,165.59

Our rate is 4%

And our period is 4 annual year (if this is semi-annual, we would double the period)

If we look at the finance calculator, we can enter these values. Present value will be left 0 for now. Enter future value, number of periods, payment amount (0), and interest. The payment will be at the END (when he turns 30). Calculate PV and you're done.

Please let me know if you have any additional questions.