How much money would have to be invested today, at 9% compounded monthly in order to have $40,000 in seven years?
A) $21,353.81
B) $23,726,43
C) $33,786.03
D) $34,928.08
E) $5,071.92

Question

Quizplus · Accepted Answer

To find the present value (the amount of money that would need to be invested today) to achieve a future value of $40,000 in 7 years at an interest rate of 9% compounded monthly, we use the formula for the present value of a single sum: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value, FV is the future value, r is the monthly interest rate (annual rate divided by 12), and n is the total number of compounding periods (months in this case). Here, FV = $40,000, annual interest rate = 9% or 0.09, so monthly interest rate $r = \frac{0.09}{12}$, and n = 7 years * 12 months/year = 84 months. Plugging these values into the formula gives the present value, which is closest to $21,353.81, making option A correct.

How Much Money Would Have to Be Invested Today, at 9