If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit?

Question

Quizplus · Accepted Answer

Using the formula for future value of a single sum:
FV = PV x (1 + r)^n
where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.

In this case, we want to find the present value (PV) that will give us $1,000 in three years at an interest rate (r) of 4 percent.
So,
FV = $1,000
r = 4% or 0.04
n = 3

$1,000 = PV x (1 + 0.04)^3
$1,000 = PV x 1.124864
PV = $888.92

Therefore, you need to deposit $888.92 to have $1,000 in three years. The closest answer choice is B ($889).

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