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.
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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 four 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

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 four 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

Quizplus · Accepted Answer

Using Table 9-2, we find that the future value factor for four years at 3% compounded annually is 1.126. To calculate how much Pablo needs to invest now, we divide his desired future value by this factor:

$3,000 ÷ 1.126 = $2,664.

Therefore, Pablo needs to invest $2,664 now to have $3,000 four years from now. The answer is choice B.

The Solution to This Problem Requires Time Value of Money