3.4 Applications of the Time Value of Money Equation
As with any new tool, you get better at using it with practice. Let’s now examine some typical questions that you can answer using the time value of money equation. We will use Methods 1, 2, and 3 to calculate our answers. Example 3.3 starts us off with a present value problem.
MyFinanceLab Video
Example 3.3 Saving for retirement (present value)
Problem
Your retirement goal is $2,000,000. The bank is offering you a certificate of deposit that is good for forty years at 6.0%. What initial deposit do you need to make today to reach your $2,000,000 goal at the end of forty years?
Solution
The following time line illustrates the problem.
Description
A left-facing arrow is shown. The arrow ...
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