A man nearing retirement wants to invest some money in a fund that compounds annually at a rate of 6 percent, so that in five years, he will have at least $100,000. How much money must he invest now to make that happen? (Give your answer to the nearest dollar.)
You would use this financial formula to calculate that:
PV = FV / [1 + R]^N, Where R=Interest rate per period, N=number of periods, PV=Present value, FV=Future value.
PV = $100,000 / [1 + 0.06]^5
PV = $100,000 / [1.06]^5
PV = $100,000 / 1.3382255776
PV = $74,726 - This is how much he must deposit today to have $100,000 in 5 years @ 6% APR.