You want $20,000 in 5 years to take your spouse on a second honeymoon.Your investment account earns 7% compounded semiannually.How much money must you put in the investment account today? (round to the nearest $1).
A)$14,178
B)$12,367
C)$15,985
D)$13,349

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for the future value of an investment is:FV = PV * (1 + r/n)^(nt)where:FV is the future valuePV is the present valuer is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, we have:FV = $20,000r = 7% = 0.07n = 2 (since the interest is compounded semiannually)t = 5Plugging these values into the formula, we get:$20,000 = PV * (1 + 0.07/2)^(2*5)$20,000 = PV * (1.035)^10$20,000 = PV * 1.349PV = $20,000 / 1.349PV = $14,839.08Rounding to the nearest $1, we get $14,839.

You Want $20,000 in 5 Years to Take Your Spouse