You want to have $35,000 in cash to buy a car 4 years from today. You expect to earn 8 percent, compounded annually, on your savings. How much do you need to deposit today if this is the only money you save for this purpose?
A) $23,618.92
B) $24,511.68
C) $25,726.04
D) $26,013.01
E) $26,311.15

Question

Quizplus · Accepted Answer

Using the future value formula:
FV = PV*(1+r)^n

where FV = future value, PV = present value, r = interest rate, and n = number of years.

We know that FV = $35,000, r = 8%, and n = 4.

Substituting these values into the formula, we get:

$35,000 = PV*(1+0.08)^4

$35,000 = PV*1.3605

PV = $35,000/1.3605

PV = $25,726.04

Therefore, the amount that needs to be deposited today is $25,726.04.

The best choice is C because it correctly calculates the present value needed to achieve the future value required using compound interest over 4 years.

You Want to Have $35,000 in Cash to Buy a Car