Homer has been saving to buy a new car in five years and expects that the car of his dreams will cost $35,000. If the interest rate is 8 percent per year, how much money should Homer have in his bank account today in order to have enough money to buy the car in 5 years?

Question

Quizplus · Accepted Answer

To find out how much Homer should have today, we need to calculate the present value of $35,000 using the formula for present value: PV = FV / (1 + r)^n, where FV is the future value, r is the interest rate, and n is the number of years. Plugging in the values: PV = $35,000 / (1 + 0.08)^5 = $23,820.41.

Homer Has Been Saving to Buy a New Car in Five