# Present Value related question??!

• Dec 1st 2007, 12:52 PM
DooBeeDoo
Present Value related question??!
You have an expected liability (cash outflow) of \$500,000 in 10 years and you use a discount rate of 10%.

• how much would you need right now to as savings to cover the expected liability?
I get \$192,771
• how much would you need to set aside at the end of each year for the next 10 years to cover the expected liability?
any help appreciated! :o
• Dec 1st 2007, 06:58 PM
kalagota
Quote:

Originally Posted by DooBeeDoo
You have an expected liability (cash outflow) of \$500,000 in 10 years and you use a discount rate of 10%.
• how much would you need right now to as savings to cover the expected liability?
I get \$192,771
• how much would you need to set aside at the end of each year for the next 10 years to cover the expected liability?
any help appreciated! :o

for the first one, you are correct..

for the second one, he would have to set aside an amount $= \dfrac{500,000}{\dfrac{(1.10)^{10} - 1}{.10}} \approx 31,372.6974$