If you want to purchase a new sports car in four years for $75,000, how much would you need to have in your bank account now, so after four years you will have $75,000 to buy the car? Assume your bank pays 6 percent interest.

Question

Quizplus · Accepted Answer

We need to use the future value formula for a single lump sum:

FV = PV x (1 + r)n

where FV is the future value, PV is the present value, r is the interest rate per period, and n is the number of periods.

In this case, we want to find the present value (PV), so we rearrange the formula:

PV = FV / (1 + r)n

We know the future value (FV) is $75,000, the interest rate (r) is 6%, and the number of periods (n) is 4.

Plugging in those values, we get:

PV = $75,000 / (1 + 0.06)4

PV = $59,408

Therefore, we would need to have $59,408 in our bank account now to have $75,000 in four years.

The correct choice is B.

If You Want to Purchase a New Sports Car in Four