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Math Help - Present value

  1. #1
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    Present value

    I have an investment problem as follows: If money can earn 8% per annum compounded annually, what is worth more: $600,000 now or one milion dollars ten years from now?
    The formula is given: P = A(1+i)^-n
    from the book this formula gives the present amount P dollars that will acumulate to A dollars over a period of n years when earning interest at an annual rate i ( i is expressed as a decimal, our rate 8%, then i = 0.08)

    I read this over a few times and would like to make sure I understand what the question is asking me.

    This is my train of thought: $600,000(1+.08)^(+10)
    This gives me 1, 295,354.998 actually the calculator did the work, I just plugged in the numbers.

    But I am not sure if I am answering the question. If I use the equation given it is clear that $600,000 now is worth more, but This is a word problem and at first glance $600,000 now and $1,000,000 ten years from now, I guess I am supposed to use the equation or why else would it be given. I am sure I am making more out of this than I am. I guess I need to do a few of these to understand what is being asked. Please let me know when you have time.

    Thank You,
    Keith Stevens
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  2. #2
    is up to his old tricks again! Jhevon's Avatar
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    Quote Originally Posted by kcsteven View Post
    I have an investment problem as follows: If money can earn 8% per annum compounded annually, what is worth more: $600,000 now or one milion dollars ten years from now?
    The formula is given: P = A(1+i)^-n
    from the book this formula gives the present amount P dollars that will acumulate to A dollars over a period of n years when earning interest at an annual rate i ( i is expressed as a decimal, our rate 8%, then i = 0.08)

    I read this over a few times and would like to make sure I understand what the question is asking me.

    This is my train of thought: $600,000(1+.08)^(+10)
    This gives me 1, 295,354.998 actually the calculator did the work, I just plugged in the numbers.

    But I am not sure if I am answering the question. If I use the equation given it is clear that $600,000 now is worth more, but This is a word problem and at first glance $600,000 now and $1,000,000 ten years from now, I guess I am supposed to use the equation or why else would it be given. I am sure I am making more out of this than I am. I guess I need to do a few of these to understand what is being asked. Please let me know when you have time.

    Thank You,
    Keith Stevens
    Your calculations seem correct. the question is asking what would cause you to have more money. if you invest 600000 compounded annually at 8% or if someone gave you 1000000 ten years from now. as you see, if you invested 600000 you would have more than a million in ten years, therefore, 600000 now in the account is worth more than 1 million 10 years from now
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