General TVM Five years ago, Jane invested $5,000 and locked in an 8 percent annual interest rate for 25 years (end 20 years from now). James can make a twenty year investment today and lock in a 10 percent interest rate. How much money should he invest now in order to have the same amount of money in 20 years as Jane?

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the present value formula of TVM, which is:

PV = FV / (1 + r)^n

Where:
PV = present value
FV = future value
r = interest rate
n = number of periods

First, we need to find out the future value of Jane's investment after 20 years, using the formula:

FV = PV x (1 + r)^n
FV = 5000 x (1 + 0.08)^20
FV = $18,117.52

Next, we need to find out how much James should invest today to have the same future value after 20 years, using the same formula:

PV = FV / (1 + r)^n
PV = 18117.52 / (1 + 0.1)^20
PV = $5,089.91

Therefore, the best choice is C, which is $5,089.91.

General TVM Five Years Ago, Jane Invested $5,000 and Locked