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. Pablos 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?
A) $2,664
B) $3,000
C) $2,520
D) $2,910

Question

Quizplus · Accepted Answer

To find the present value, use the formula PV = FV / (1 + r)^n. Here, FV = $3,000, r = 0.03, and n = 4. PV = $3,000 / (1.03)^4 = $2,664.

The Solution to This Problem Requires Time Value of Money