The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Ralph wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years from now.If he opens a savings account and earns 3% on his money,compounded annually,how much will he have to invest now?

Question

Quizplus · Accepted Answer

We need to find the present value of a future amount, which can be calculated using the formula:

PV = FV / (1 + r)^n

Where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, FV = $3,000, r = 3%, and n = 4. Using Table 9-1 (Present Value of $1), we can find the present value factor for 4 periods at 3%. The factor is 0.889.

So, PV = $3,000 / (1+0.03)^4 
PV = $2,664 (rounded to the nearest dollar)

Therefore, the best choice is B, $2,664.

The Solution to This Problem Requires Time Value of Money