Present Value: Juan and Carla Herman plan to buy a time-share in six years in the amount of $16,860. In order to have adequate funds to do so, the Herman's 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 Carla need to deposit today to achieve their goal? (Round off to the nearest dollar.)

Question

Quizplus · Accepted Answer

This question requires the calculation of present value, which is the current value of a future payment or series of payments, discounted at a given rate of return. In this case, we need to find the amount that Juan and Carla should deposit today to have $16,860 in six years, assuming an annual compounded interest rate of 5.75%.

The present value can be calculated using the formula:

PV = FV / (1 + r) ^ n

Where: 
PV = Present Value
FV = Future Value
r = interest rate
n = number of periods

Substituting the given values, we get:

PV = 16,860 / (1 + 0.0575) ^ 6
PV = 12,054.91

Therefore, Juan and Carla need to deposit $12,055 today to achieve their goal of buying a $16,860 time-share in six years at an annual interest rate of 5.75%. The closest answer to this value is C) $12,055.

Present Value: Juan and Carla Herman Plan to Buy a Time-Share