Autorola plans to invest money today at an interest rate of 6% compounded annually to have $40,000 available for the purchase of a car four years from now.How much does the firm need to invest today?
A)$50,499.08
B)$36,384.52
C)$31,683.75
D)$9,143.66

Question

Quizplus · Accepted Answer

To find out how much Autorola needs to invest today to have $40,000 available in four years at an interest rate of 6% compounded annually, we use the formula for the present value of a single future amount: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value (amount to invest today), FV is the future value ($40,000), r is the annual interest rate (6% or 0.06), and n is the number of years (4). Plugging in the values: $PV = \frac{40,000}{(1 + 0.06)^4} = \frac{40,000}{1.262477} = $31,683.75$.

Autorola Plans to Invest Money Today at an Interest Rate