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I am trying to calculate the present day dollars of $84,000 at 5% interest rate.
Excel inputs: =PV(0.05,25,0,84000,0)
Answer: -$24,805
In previous readings I believe the way to look at the negative is that it's the amount of the payment I have to pay out but it always throws me off.
If anyone could confirm this is the present day dollar value that would be great!
Thanks!
Your calculation is correct. The result means that you would have to put $24,805 on the table today, wait for 25 years, and come back to collect $84,000. The result is negative because you have to pay less than the full amount. Put differently, $84000 +(-24805) = [expected interest].
Prove your calculation like this. Make the following entries in a blank worksheet.
[C1] =24805[A2] =A1+1[B2] =C1[C2] =B2*1.05Copy A2:C2 down to row 26. In column C you will see how your initial investment increases by 5% each year until it reached $83,998.53 after 25 years (column A). I presume that MSÂ won't make good your shortfall of $1.47. Instead, they are likely to be able to explain how this has to do with the difference between 365.25 actual days in a year and 365 days presumed by their formula. (Not good enough for me, lol: But who wants to argue with MS?)