A local furniture store is advertising a deal in which you buy a $3,500 living room set with 3 years before you need to make payments (no interest is incurred). How much money would have to deposit now in a savings account earning 3.5% APR, compounded monthly, to pay the $3,500 bill in three years?

Question

Quizplus · Accepted Answer

To calculate the present value of the $3,500 bill in three years, we need to use the formula: PV = FV / (1 + r/n)^(n*t), where PV is the present value, FV is the future value, r is the interest rate, n is the number of times the interest is compounded per year, and t is the time period in years.

Substituting the given values, we get:
PV = 3500 / (1 + 0.035/12)^(12*3)
PV ≈ $3,151.62

Therefore, the amount of money that needs to be deposited now in a savings account earning 3.5% APR, compounded monthly, to pay the $3,500 bill in three years is $3,151.62.

A Local Furniture Store Is Advertising a Deal in Which