Posted: March 30th, 2016

Determining the present value of a lump sum future cash receipt

Determining the present value of a lump sum future cash receipt for Mr. Gulliver

Kade Gulliver turned 20 years old today. His grandfather established a trust fund that will pay Mr.Gulliver $60,000 on his next birthday. However, Mr. Gulliver needs money today to start his college education. His father is willing to help and has agreed to give Mr. Gulliver the present value of the future cash flow, assuming a 10% rate of return.

a. Use a present value table to determine the amount of cash that Mr. Gulliver s father should give him.
b. Use an algebraic formula to prove that the present value of the trust fund (the amount of cash computed in requirement a) is equal to its $60,000 future value.