Twenty years from now, you want to spend $175,000 for a fancy car. How much must you deposit as a lump sum today to achieve this goal at an annual interest rate of 6.6 percent?
A) $54,208.16
B) $48,740.95
C) $57,911.08
D) $40,019.82
E) $51,446.60

Question

Quizplus · Accepted Answer

We can use the formula for present value of a lump sum:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the annual interest rate, and n is the number of periods.

In this case, FV = $175,000, r = 6.6%, and n = 20 (since we want the money 20 years from now). Substituting these values, we get:

PV = $175,000 / (1 + 0.066)^20
PV = $48,740.95

Therefore, the amount that must be deposited as a lump sum today to achieve the goal is $48,740.95. Choice (B) is the correct answer.

Twenty Years from Now, You Want to Spend $175,000 for a Fancy