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) $2,520
B) $2,664
C) $2,910
D) $3,000

Question

Quizplus · Accepted Answer

Using Table 9-1, the future value factor for 4 years at 3% compounded annually is 1.1255.

To calculate the present value, we divide the future value needed ($3,000) by the future value factor:

$3,000 ÷ 1.1255 = $2,664 (rounded to the nearest dollar)

Therefore, Pablos needs to invest $2,664 now to have $3,000 in 4 years when he graduates from college. Choice B is the best answer.

The Solution to This Problem Requires Time Value of Money