Jane wants to set aside funds to take an around the world cruise in four years. Jane expects that she will need $12,000 for her dream vacation. If she is able to earn 8% per annum on an investment, how much will she have to set aside today so that she will have sufficient funds available?
A) $2,663.
B) $16,325.
C) $8,820.
D) $8,167.

Question

Quizplus · Accepted Answer

To calculate the present value, we need to use the formula for the present value of a single sum.

PV = FV / (1 + r)^n

Where 
PV = present value 
FV = future value 
r = interest rate per period 
n = number of periods

We know that Jane wants to save $12,000 in four years, and she will earn an interest rate of 8%.

FV = $12,000 
r = 8% per annum 
n = 4 years

Plugging these values into the formula:

PV = $12,000 / (1 + 0.08)^4 
PV = $8,820

So Jane needs to set aside $8,820 today to have enough funds for her dream vacation in four years. Therefore, the correct answer is C.

Jane Wants to Set Aside Funds to Take an Around