Duane and Thad plan on retiring 27 years from today and plan to have the same amount saved at that time. In preparation for this, Duane is depositing $15,000 today at an annual interest rate of 5.2 percent. How will Thad's deposit amount vary from Duane's if Thad also makes a deposit today but earns an annual interest rate of 6.2 percent?
A) $4,118.42 more
B) $4,333.33 less
C) $3,417.09 more
D) $4,274.12 less
E) $3,381.39 less

Question

Quizplus · Accepted Answer

Thad needs to deposit less today because he earns a higher interest rate. The future value of Duane's deposit is calculated using the formula FV = PV * (1 + r)^n. Solving for Thad's present value with his interest rate gives a lower amount than Duane's deposit.

Duane and Thad Plan on Retiring 27 Years from Today