If you want to have $1,700 in seven years, how much money must you put in a savings account today? Assume that the savings account pays 6% and it is compounded quarterly (round to the nearest $10).
A) $1,120
B) $1,130
C) $1,110
D) $1,140

Question

Quizplus · Accepted Answer

To find out how much money must be put in a savings account today to have $1,700 in seven years with an interest rate of 6% compounded quarterly, we use the formula for the present value of a single sum: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($1,700), r is the quarterly interest rate (6%/4 = 1.5% or 0.015 as a decimal), and n is the total number of compounding periods (7 years * 4 quarters/year = 28 quarters). Plugging in the values, we get $PV = \frac{1700}{(1 + 0.015)^{28}}$, which when calculated and rounded to the nearest $10, gives approximately $1,120.

If You Want to Have $1,700 in Seven Years, How