Juan and Rachel Burpo plan to buy a time-share in six years of $16,860. In order to have adequate funds to do so, the Burpo want to make a deposit to their money market fund today. Assume that they will be able to earn an investment rate of 5.75%, compounded annually. How much will Juan and Rachel need to deposit today to achieve their goal? (Round off to the nearest dollar.)

Question

Quizplus · Accepted Answer

We can use the formula for future value of a single sum with compound interest to determine the present value required:

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 years.

Substituting the given values, we get:

PV = 16,860 / (1 + 0.0575)^6
PV = 12,055.41

Rounding off to the nearest dollar, the answer is $12,055, which corresponds to choice C.

Juan and Rachel Burpo Plan to Buy a Time-Share in Six