Betty Dylan is taking an adult education night course in personal finance at the community college. The class is presently studying retirement planning. Each student is to estimate the amount of funds (in addition to pension plans and social security) they believe will be needed at retirement. Then they are to make a retirement plan. Betty has estimated she would need $100,000 fifteen years from now. In order to complete her assignment, she needs to know the present value of the $100,000. Betty further assumes an interest rate of 6%.
Solution to Example
Step 1. Refer to the Present-Value Table appearing in Appendix 13-A at the back of this chap- ter. Reading across, or horizontally, find the 6% column. Reading down, or vertically, find Year 15. Trace across the Year 15 line item to the 6% column. The factor is 0.4173.
Step 2. Multiply $100,000 times the factor of 0.4173 to find the present value of $41,730.