You are currently entering university and you want to buy your uncle's Mercedes when you graduate. He has promised to sell it to you for $18,000. How much will you have to deposit now, in an account earning 8%, to have enough money buy the car in 4 years?

Question

Quizplus · Accepted Answer

The amount of deposit required can be calculated using the formula for future value of a single lump sum:

FV = PV x (1+r)^n

Where:
FV = Future value (amount required to purchase the car in 4 years)
PV = Present value (deposit required today)
r = Interest rate (8% per year)
n = Number of years (4)

Substituting the given values, we get:

18,000 = PV x (1 + 0.08)^4
PV = 13,230.36

Therefore, the deposit required today is $13,230. Option C is the correct answer.

You Are Currently Entering University and You Want to Buy