This is a true story. There was a student in this Business Math class several ye
ID: 2742897 • Letter: T
Question
This is a true story. There was a student in this Business Math class several years ago who was very interested in this chapter, because she wanted to know how much money she would need to deposit now in order to have $35,000 in four years for her wedding. By the way, on graduation day a few years ago, she introduced me to her new husband. At that time savings accounts were paying 8% interest.
Determine the amount needed to be deposited today (as a onetime deposit) in order to have $35,000 four years from now. Compounded: Annually Semi annually Quarterly
Explanation / Answer
Solution :
PV = FV / ((1+r)^n)
Annually :
PV=Present value= ?, r = interest rate=0.08,n=number of years =4
FV=FUTURE VALUE
PV = 35000/((1+.08)^4)
=35000/1.3605
=$25726
Semi Annually :
PV=Present value= ?, r = interest rate=0.08/2=0.04,n=number of years =4*2=8
FV=FUTURE VALUE
PV = 35000/((1+.04)^8)
=35000/1.36857
=$25574
Quarterly :
PV=Present value= ?, r = interest rate=0.08/4=0.02,n=number of years =4*4=16
FV=FUTURE VALUE
PV = 35000/((1+.02)^16)
=35000/1.37278
=$25496
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