You are considering two savings options. Both options offer a 4% rate of return. The ﬁrst option is to save $1,200, $1,500, and $2,000 a year over the next three years, respectively. The other option is
To save one lump sum amount today. If you want to have the same balance in your savings at the
End of the three years, regardless of the savings method you select, how much do you need to
Save today if you select the lump sum option?

Question

Quizplus · Accepted Answer

The correct answer is A.The future value of the first option is $1,200 * (1 + 0.04)^3 + $1,500 * (1 + 0.04)^2 + $2,000 * (1 + 0.04) = $4,318.67.Therefore, the lump sum amount that needs to be saved today is $4,318.67.

You Are Considering Two Savings Options