Discuss the difference between the two methods. Analyze the numbers in the problem.

Discounted payback method | Business & Finance homework help

The main difference between the Future Value of Money formula and Present Value of Money formula is that they are used to calculate different values. The present value of money is used to determine how much money must be invested now in order to achieve a certain amount at a future date, while the future value of money is used to calculate what the real value of a given sum will be at a later time.

In terms of analyzing the numbers provided in this problem – let us assume you have $1000 which you desire to save for retirement in 10 years. If inflation rate during this period is 5%, then according to Future Value of Money formula this sum would be equivalent to around $1,628 (adjusted for inflation). Whereas if we use Present Value of Money formula then it would require an initial investment amounting to approximately $811 today – in order for your desired retirement goal ($1000) at 10 year mark can be achieved.