Discounted payback method | Business & Finance homework help

One of the main differences between Future Value of Money Formula and Present Value of Money Formula is their ability to calculate different values. To determine how much money you must invest now to attain a particular amount later, the Present Value of Money formula is used. The Future Value of Money is used to calculate the actual value of an investment sum.

In terms of analyzing the numbers provided in this problem – let us assume you have $1000 which you desire to save for retirement in 10 years. This sum, adjusted for inflation, would equal $1,628 if the inflation rate is 5% during that period. Whereas if we use Present Value of Money formula then it would require an initial investment amounting to approximately $811 today – in order for your desired retirement goal ($1000) at 10 year mark can be achieved.