In five years your oldest child will be in 8^th grade, at which point you and your family plan to vacation in Europe. You estimate that you will need $20,000 for the trip. How much do you need to set aside today if you can place your money in an investment vehicle earning an average of 4.50% per year?

Question

Quizplus · Accepted Answer

To calculate the amount needed today, we can use the present value formula:

Present Value = Future Value / (1 + r)n

Where:
r = interest rate
n = number of years until the future value is needed

Plugging the given values into the formula, we get:

Present Value = $20,000 / (1 + 0.045)5

Present Value = $16,048.84

Rounding off to the nearest dollar gives the answer as $16,049, which is option C.

In Five Years Your Oldest Child Will Be in 8th

In Five Years Your Oldest Child Will Be in 8^th