Andy promises Opie that he will give him $5,000 upon his graduation from college at Mayberry U. How much must Andy invest today to make good on his promise, if Opie is expected to graduate in 12 years and Andy can earn 5% on his money?
A) $2,135.32
B) $2,784.19
C) $2,881.11
D) $3,012.88
E) $8,979.28

Question

Quizplus · Accepted Answer

To find out how much Andy must invest today, we need to calculate the present value of $5,000 due in 12 years at a 5% interest rate. Using the formula for present value, PV = FV / (1 + r)^n, where FV is the future value ($5,000), r is the interest rate (0.05), and n is the number of years (12), we get PV = $5,000 / (1.05)^12 = $2,784.19.

Andy Promises Opie That He Will Give Him $5,000 Upon