Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings bond?
A)$1,425.98
B)$1,330.12
C)$9,533.08
D)$8,200.40

Question

Quizplus · Accepted Answer

We can use the formula for future value of a single sum with compound interest: 
FV = PV(1 + r/n)^(nt), 
where PV is the present value (or the amount to be invested), r is the annual interest rate (as a decimal), n is the number of times per year the interest is compounded, t is the number of years.

We know that FV = $2,000, r = 0.06, n = 1 (annually compounded), and t = 7. So we can solve for PV:

PV = FV / (1 + r/n)^(nt) = $2,000 / (1 + 0.06/1)^(1*7) = $1,330.12

Therefore, Harlan must invest $1,330.12 in a 6% savings bond to have $2,000 in 7 years. The answer is (B).

Harlan Fuller Needs $2,000 in 7 Years