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? (Future Value of $1,Present Value of $1,Future Value Annuity of $1,Present Value Annuity of $1. )(Use appropriate factor from the PV tables.Round your final answer to the nearest whole dollar amount. )

Question

Quizplus · Accepted Answer

We need to find the present value of the car, which is $28,000.
Using the formula for present value of a single sum:
PV = FV/(1+r)^n
where PV = present value, FV = future value, r = interest rate, and n = number of periods.
Substituting the values we get:
PV = 28,000/(1+0.08)^5
PV = 19,056.61
Rounding it to the nearest whole dollar amount, we get:
PV = $19,057
Hence, the amount that needs to be deposited today is $19,057, which is option B.

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