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)


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?


The following time line illustrates the problem.


A left-facing arrow is shown. The arrow ...

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