Anthony Driver wants to buy a new car in 4 years.He knows that he can earn 10% interest compounded semi-annually.How much must he deposit now in order to have $26,000 at the end of 4 years? Use Table PV-1.
A)$21,390.20
B)$17,602.00
C)$38,413.96
D)$31.603.26

Question

Anthony Driver wants to buy a new car in 4 years.He knows that he can earn 10% interest compounded semi-annually.How much must he deposit now in order to have $26,000 at the end of 4 years? Use Table PV-1. 
A)$21,390.20 
B)$17,602.00 
C)$38,413.96 
D)$31.603.26

Quizplus · Accepted Answer

We need to use the present value table to find the present value of $26,000, given a 10% annual interest rate compounded semi-annually and a term of 8 semi-annual periods (since 4 years is equivalent to 8 semi-annual periods). Looking at the table, we find that the factor for 8 semi-annual periods at a 5% interest rate (half of 10%) is 0.67724. Therefore, the present value of $26,000 is:

Present value = $26,000 x 0.67724 = $17,602.00

Therefore, Anthony Driver must deposit $17,602.00 now in order to have $26,000 at the end of 4 years. Option B is the best choice.

Anthony Driver Wants to Buy a New Car in 4