You just won the lottery and after taxes you have $32,000. You want to have $1,000,000 by the time you are 65, which is 45 years from now. Assuming that you can earn 9% each on your money, how much (in dollars) of the $32,000 must you invest today?
A) $17,891.62
B) $18,524.91
C) $20,692.24
D) $22,943.28

Question

Quizplus · Accepted Answer

We can use the formula for present value of a lump sum to solve this problem:

PV = FV / (1 + r)^n

PV = present value (what you need to invest today)
FV = future value (what you want to have in 45 years)
r = interest rate per year (9%)
n = number of years (45)

Plugging in the values:

PV = 1,000,000 / (1 + 0.09)^45
PV = 20,692.24

So you would need to invest $20,692.24 today to have $1,000,000 in 45 years. Therefore, choice C is the best choice.

You Just Won the Lottery and After Taxes You Have