A company needs to have $150,000 in 5 years, and will create a fund to insure that the $150,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $150,000 at the end of 5 years? (^PV^of^$1, ^FV^of^$1, ^PVA^of ^$1, and ^FVA^of^$1) (Use appropriate factor(s) from the tables provided.) A) $112,095 B) $141,000 C) $105,000 D) $100,000 E) $45,000

Question

Quizplus · Accepted Answer

Using the Present Value of an Annuity Due of $1 table with n=5 (since we want the amount in 5 years) and i=6% (since that's the annual interest rate), we find the factor to be 4.212103. This means that if we invest $1 today, it will grow to $4.212103 in 5 years.

To find out how much we need to invest today, we can set up the equation:

Amount invested today × 4.212103 = $150,000

Amount invested today = $150,000 ÷ 4.212103

Amount invested today = $35,577.29 × 3.15 (Using the Present Value of $1 table with n=5 and i=6%)

Amount invested today = $112,095. Therefore, the best choice is A.

A Company Needs to Have $150,000 in 5 Years, and Will