To find the present value (PV) of receiving $1,000,000 twenty years from now, we can use the formula for present value:
PV = FV / (1 + r)^n
Where:
- FV = future value ($1,000,000)
- r = discount rate (10% or 0.10)
- n = number of years (20)
Plugging in the numbers:
PV = 1,000,000 / (1 + 0.10)^{20}
This simplifies to:
PV = 1,000,000 / (1.10)^{20}
Calculating (1.10)^{20} gives approximately 6.7275:
PV = 1,000,000 / 6.7275
After performing the division, we find:
PV ≈ 148,644.22
Thus, the present value of receiving $1,000,000 in twenty years, discounted at an annual rate of 10%, is approximately $148,644.22.
This means if you had about $148,644.22 today and invested it at a 10% annual return, it would grow to $1,000,000 in twenty years.