You are saving for a car that costs $28,000 that you hope to purchase in five years. How much will you need to deposit today in a savings account that earns 8%, compounded annually, to withdraw enough for the purchase?

Question

Quizplus · Accepted Answer

We can use the present value formula to find the amount that needs to be deposited today:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, the future value is $28,000, the interest rate is 8% compounded annually, and the number of periods is 5 years. Plugging in these values, we get:

PV = 28,000 / (1 + 0.08)^5
PV = 28,000 / 1.469
PV = 19,057

Therefore, the amount that needs to be deposited today is $19,057. The answer is B.

You Are Saving for a Car That Costs $28,000 That