If the anticipated sale price of a residential property in three years is $250,000 and the desired investment rate is 10%, what is its present value?

To determine the present value of a future amount, the formula used is:

[ PV = \frac{FV}{(1 + r)^n} ]

where:

• ( PV ) is the present value,

• ( FV ) is the future value ($250,000 in this case),

• ( r ) is the discount rate (10% or 0.10),

• ( n ) is the number of years until the amount is received (3 years).

Substituting the values into the formula:

[ PV = \frac{250,000}{(1 + 0.10)^3} ]

Calculating the denominator:

[ (1 + 0.10)^3 = (1.10)^3 = 1.331 ]

Now, substituting this back into the present value equation:

[ PV = \frac{250,000}{1.331} \approx 187,827.64 ]

Rounding this to two decimal places gives approximately $187,829. This calculation shows how much the future money to be received is worth in today's terms when accounting for a 10% return over three years.

Thus, the present value of the anticipated sale price in today’s terms