In order to receive $12,000 at the end of three years and $10,000 at the end of five years,how much must be invested now if you can earn 14% rate of return? (Ignore income taxes in this problem.)

Question

Quizplus · Accepted Answer

We can use the formula for present value of a lump sum to solve this problem:

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the rate of return, and n is the number of years.

For the first amount of $12,000 due in three years:

PV = 12,000 / (1 + 0.14)^3 
PV = 8,099.62

For the second amount of $10,000 due in five years:

PV = 10,000 / (1 + 0.14)^5 
PV = 5,190.87

The total present value of these two amounts is:

PV = 8,099.62 + 5,190.87 
PV = 13,290.49

Therefore, the amount that must be invested now to achieve these two future amounts is $13,290.

The correct answer is C.

In Order to Receive $12,000 at the End of Three