You would like to have $50,000 saved at the end of Year 5.At the end of Year 2,you can deposit $7,500 for this purpose.If you earn 4.5 percent,how much must you deposit today to reach your goal assuming no other deposits are made?

Question

Quizplus · Accepted Answer

The correct answer is A.The future value of the deposit at the end of Year 5 is $50,000. The deposit at the end of Year 2 is $7,500. The interest rate is 4.5%. The number of years from today to the end of Year 5 is 5. The number of years from today to the end of Year 2 is 2.The present value of the deposit at the end of Year 5 is $50,000 / (1 + 0.045)^5 = $33,254.58.The present value of the deposit at the end of Year 2 is $7,500 / (1 + 0.045)^2 = $6,603.84.The present value of the deposit today is $33,254.58 - $6,603.84 = $26,650.74.

You Would Like to Have $50,000 Saved at the End