Suppose your grandmother told you (today)that she had set aside an amount of money in a savings account bearing 3% interest that was sufficient to give you a $5,000 graduation present in exactly four years. How much would she have had to set aside?

Question

Quizplus · Accepted Answer

We need to find the present value (PV) of the $5000 gift that will be given in 4 years. We use the formula PV = FV/(1+r)^n, where FV is the future value, r is the interest rate, and n is the number of periods. Plugging in the values, we get PV = $5000/(1.03)^4, which simplifies to $4,289.24 (rounded to the nearest penny). Therefore, our grandmother would have had to set aside $4,289.24 in the savings account. Choice C is the closest to this answer.

Suppose Your Grandmother Told You (Today)that She Had Set Aside