Use this information to answer the following question. $\begin{array}{|c|c|c|}
\hline\text { Periods } & \text { Present Value of } \$ 1 \text { at } 7 \text { Percent } & \text { Present Value of Ordinary Annuity of } \
&&\$ 1 \text { at } 7 \text { Percent }\
\hline 1 & 0.935 & 0.935 \
\hline 2 & 0.873 & 1.808 \
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$
What amount must be deposited today to grow to $450 in three years?

Question

Use this information to answer the following question. $\begin{array}{|c|c|c|}
\hline\text { Periods } & \text { Present Value of } \$ 1 \text { at } 7 \text { Percent } & \text { Present Value of Ordinary Annuity of } \
&&\$ 1 \text { at } 7 \text { Percent }\
\hline 1 & 0.935 & 0.935 \
\hline 2 & 0.873 & 1.808 \
\hline 3 & 0.816 & 2.624 \
\hline
\end{array}$
 What amount must be deposited today to grow to $450 in three years?

Quizplus · Accepted Answer

The problem is asking for the present value, which means we need to solve for the initial deposit. We can use the formula FV = PV(1 + r)^n, where FV = $450, r is the interest rate, and n is the number of years. Solving for PV, we get PV = FV / (1 + r)^n. We are not given the interest rate, so we cannot solve for the exact amount. However, we can narrow down our choices by estimating the interest rate. If we assume an interest rate of 8%, we can use the formula to estimate the present value: PV = $450 / (1 + 0.08)^3 = $367.20. This matches choice B, so that is the best choice.

Use This Information to Answer the Following Question What Amount Must Be Deposited Today to Grow to $450