interest???

Question

I need to find the present value(no clue what present value means) in $4000 in 5 years if the investment earns 6% compounded yearly...
does anyone know how to do this? can you please help?
THX! :D

Answer 1

I am interpretting the question as

"How much would I have to invest today to have $4,000 in five years if the investment earns 6% compounded yearly?"

To answer that question, first compute how much the investment would grow by taking 1.06 to the fifth power.

1.06 x 1.06 x 1.06 x 1.06 x 1.06 = 1.3382255776

then dividing $4,000 by the result.

$4,000 / 1.3382255776 = $2,989.04