Now, suppose the city of McDonough realizes that it cannot set aside the $320,000 it previously…

Now, suppose the city of McDonough realizes that it cannot set aside the $320,000 it previously planned for water infrastructure and repairs. However, it can invest $35,000 a year for twenty years. Assume that the interest rate on the city’s investments remain constant at four percent. How much money will the city have after twenty years? Which investment strategy is better (i.e., lump-sum or smaller, constant installments)?

Calculating the Present Value of Needed Investments

CAU’s Public Administration Department needs to hire three new assistant professors in five years. The salary of each professor is expected to be $85,000. Assume that the department can only invest consistent, annual payments for five years into an investment account. If the account produces a constant interest rate of six percent, how much will the department need to invest each year in order to hire the three assistant professors at the end of the five years?

Computing Present Value for the University

A donor has promised Clark Atlanta University to make a contribution of $3,500,000 in five years for the designated purpose of creating a Public Policy Research Institute. However, if the university wants money now, the donor is willing to give the university $2,000,000 today. If the university invests the money received today at a four percent interest rate for the ten years, would it be better for the university to ask for the $2,000,000 now and invest it on their own or wait to receive the $3,500,000 in payments over ten years?