Rick decided he was tired of being a poor college student when he visited a local electronics store and experienced its finest home theatre system.He determined that he would invest today a portion of the remaining money he earned last summer cleaning animal cages at the veterinary clinic.He plans to invest the money into an international mutual fund for 2.5 years and expects to earn an average annual rate of return of 15%.If Rick wants to have $5,000 in the account at the end of this time,how much must he invest today?
A)$2,253
B)$3,048
C)$3,526
D)$3,891

Question

Quizplus · Accepted Answer

We can use the formula for future value of a single sum:

FV = PV x (1 + r)^n

where FV is the future value, PV is the present value (what Rick needs to invest today), r is the annual rate of return, and n is the number of years.

Plugging in the given values, we get:

$5,000 = PV x (1 + 0.15)^2.5

Solving for PV:

PV = $3,526.10

So Rick needs to invest $3,526.10 today to have $5,000 in 2.5 years.

Therefore, the best choice is C.

Rick Decided He Was Tired of Being a Poor College