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    Finding an Unknown Future Payment Amount

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    Alex has just won the lottery. Specifically, Alex has won the lump sum amount of $1100 but he must wait until the end of 5 years to receive the money. He is in need of cash and would rather receive a different pattern of payments: $325 today and then receive some unknown lump sum amount that will be received in 5 years. Using an interest rate of 5.50%, determine the unknown lump sum amount that would make the present value of both prizes equivalent.

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    Solution Preview

    Please see the attached Excel 97-2003 spreadsheet.

    Alex has just won the lottery. Specifically, Alex has won the lump sum amount of $1100 but he must wait until the end of 5 years to receive the money. He is in need of cash and would rather receive a different pattern of payments: $325 today and then
    receive some unknown lump sum amount that will be received in 5 years. Using an interest rate of 5.50%, determine the ...

    Solution Summary

    This solution illustrates how to use Excel's time value of money functions to find the amount of an unknown future payment that equates to a known future payment if a portion of the former payment is received today.

    $2.19