Three years from now, Barbara Waters will purchase a laptop computer that will cost $2,250. Assume that Barbara can earn 6.25% (compounded monthly) on her money. How much should she set aside today for the purchase? Round off to the nearest $1.
A) $1,250
B) $900
C) $1,866
D) $3,775

Question

Quizplus · Accepted Answer

First, we need to find the future value of $2,250 in three years, compounded monthly at a rate of 6.25%. We use the formula:

FV = PV * (1 + r/12)^(n*12)

where FV is the future value, PV is the present value (what we need to find), r is the annual interest rate (6.25%), and n is the number of years (3).

Plugging in the values, we get:

$2,250 = PV * (1 + 0.0625/12)^(3*12)
$2,250 = PV * 1.2134
PV = $1,857.71

Therefore, Barbara should set aside $1,857.71 today for the purchase. Since we need to round off to the nearest $1, the answer is C: $1,866.

Three Years from Now, Barbara Waters Will Purchase a Laptop