The amount you must deposit now in your savings account, paying 6% interest, in order to accumulate $6,000 for a down payment five years from now on a new car is

Question

Quizplus · Accepted Answer

To find the present value (the amount you must deposit now) to accumulate a future sum, you use the formula for the present value of a single sum, which is $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value ($6,000), r is the interest rate per period (6% or 0.06), and n is the number of periods (5 years). Plugging in the values, $PV = \frac{6000}{(1 + 0.06)^5}$, which calculates to approximately $4,484.

The Amount You Must Deposit Now in Your Savings Account