how much to invest with 12% return to get 1 million for the next 5 year
Invested when? As a lump sum? Are you trying to have 1 million after 5 years or 1 million per year, and use it up?
How much would an investor with a 12% required return be willing to invest in a project that will provide a cash flow of $2M every year for five years, five years from now, i.e. in years 6,7,8,9 and 10.
To calculate how much you need to invest with a 12% return to reach $1 million in the next 5 years, you can use the future value formula for compound interest. The formula is:
FV = PV * (1 + r)^n
Where:
FV = Future Value
PV = Present Value (amount to invest)
r = Annual interest rate (in decimal form)
n = Number of compounding periods
In this case, the future value (FV) is $1 million, the annual interest rate (r) is 12% (or 0.12 as a decimal), and the number of compounding periods (n) is 5 (since you want to achieve the goal in the next 5 years).
Let's rearrange the formula to solve for the present value (PV):
PV = FV / (1 + r)^n
Substituting the known values into the formula:
PV = 1,000,000 / (1 + 0.12)^5
PV = 1,000,000 / (1.12)^5
Now, we can calculate:
PV = 1,000,000 / 1.76234
PV ≈ $567,425.97
Therefore, you would need to invest approximately $567,425.97 with a 12% return to reach $1 million in the next 5 years.