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Present Value and Inflation

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For this problem, I will give an example problem from my textbook with a solution for your review. I will then need you to develop one of your own examples illustrating the topic of present value. Your example should center around a hypothetical scenario that uses the same methods and formulas, but substitutes the situation and numbers for your own. Please put mine and your examples and solutions in a Word Document.

EXAMPLE

Present Value

3. An insurance agent wishes to sell you a policy that will pay you $100,000 in 30 years. What is the value of this policy in today's dollars, if we assume a 9% inflation rate, compounded annually?

PV = FV/(1 + i)n where PV is the present value
FV is the future value
i is the interest rate
n is the period

PV = 100,000/(1 + 0.09)30
= 100,000/13.2677
= 7,537.11

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Solution Summary

The expert gives an example of a present value calculation. The inflation for present value is discussed.

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EXAMPLE

Present Value

3. An insurance agent wishes to sell you a policy that will pay you $100,000 in 30 years. What is the value of this policy in today's dollars, if we assume a 9% ...

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