Your parents plan to spend $20,000 on a car for you upon graduation from college.If you will graduate in three years and your parents can earn 4.125% annually on their investment,how much money must they set aside today for your car?

Question

Quizplus · Accepted Answer

This question involves present value calculations. The formula to use is:

PV = FV / (1 + r)n

where PV is the present value, FV is the future value, r is the interest rate per period, and n is the number of periods.

In this case, FV is $20,000, r is 4.125%, and n is 3 years. Plugging these values into the formula, we get:

PV = $20,000 / (1 + 0.04125)3
PV = $17,716.18

Therefore, your parents must set aside $17,716.18 today for your car. The answer is choice C.

Your Parents Plan to Spend $20,000 on a Car for You