Computation of annual payment.
You will retiring in 25 years and want to have amassed $1 million in savings at the time you retire. Assume you can earn a 6% annual return per year for the next 25 years. Also assume that you will be making equal annual contributions to this retirement fund (beginning one year from today). What annual contribution will be required if you are to achieve your goal?
Calculation of present value.
You just won a $10 million lottery! You can elect to receive $1 million a year for the next 10 years (with the first payment received today, for a total of 10 payments) or you can take a lump-sum payout today in the amount of $6.5 million. Assuming you are only interested in maximizing the present value of the lottery payments, demonstrate the superior strategy. Assume a 10% discount rate.