Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?

Question

Quizplus · Accepted Answer

To find the initial investment needed to reach $25,000 in 6 years at an 8% annual interest rate, 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 (initial investment needed), FV is the future value ($25,000), r is the annual interest rate (0.08), and n is the number of years (6). Plugging in the values, we get $PV = \frac{25000}{(1 + 0.08)^6} = \frac{25000}{1.586874322} = 15,754.28$.

Jay Has Made a Deal with His Daughter to Start