Question

11. Compute the amount of money to be set aside today to ensure a future value of $4,900 in 1 year if the interest rate is 8.5% annually, compounded annually.

Answer 1

$4,516.13

Explanation:

Given:

Future value = $4,900

Time, n = 1

Interest rate = 8.5%

now,

Present Value = Future Value / (1 + interest rate )ⁿ

on substituting the respective values, we get

Present Value = $4,900 / (1 + 0.085 )¹

or

Present value = $ 4,900 / 1.085

or

The present value = $4,516.13

Hence, the amount to be set aside today = $4,516.13