Use Pv to determine the present value of an investment. The Calculator computes the present value based on a series of equal payments discounted at a periodic interest rate over the number of periods in the term. The following information is retrieved from the memory registers:
Register 0: Amount of each payment
Register 1: Periodic interest rate
Register 2: Term, or number of payments
You have just won a million dollars. The prize is awarded in 20 annual payments of $50,000 each (a total of $1,000,000 over 20 years). Annual payments are received at the end of each year. You are given the option of receiving a single lump-sum payment of $400,000 instead of the million dollars annuity. You want to find out which option is worth more in today's dollars.
If you were to accept the annual payments of $50,000, you assume that you would invest the money at a rate of 9%, compounded annually.
Memory register usage:
Register 0: 50000 (periodic payment). Register 1: 0.09 (periodic interest rate is 9%) Register 2: 20 (term)
Clicking SELECT on Pv returns a value of 456427.28, which tells you that the $1,000,000 paid over 20 years is worth $456,427 in present dollars. Based on your assumptions, the lump-sum payment of $400,000 is worth less than the million-dollar ordinary annuity, in present dollars (before taxes).