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Math Help - Present Value related question??!

  1. #1
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    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!
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  2. #2
    MHF Contributor kalagota's Avatar
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    Taguig City, Philippines
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    Quote Originally Posted by DooBeeDoo View Post
    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!
    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
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