A young couple wants to start a family in five years time. They plan to add an addition to their home in four years so it is ready when they start their family. They estimate that $ 130,000 will be needed in four years. They can earn 8% on an investment now. If the couple makes one lump sum deposit now in order to have $ 130,000 in four years, how much should they deposit.

Question

Quizplus · Accepted Answer

The correct answer is A.The couple needs to deposit $94,399 now in order to have $130,000 in four years, assuming they can earn 8% on their investment. This is calculated using the formula:PV = FV / (1 + r)^nwhere:PV is the present value (the amount you need to deposit now)FV is the future value (the amount you need in four years)r is the annual interest rate (8%)n is the number of years (4)Plugging in the values, we get:PV = 130,000 / (1 + 0.08)^4PV = 130,000 / 1.3605PV = $94,399

A Young Couple Wants to Start a Family in Five