Question

Given below are the present value factors for $1.00 discounted at 6% for one to five periods. Interest is compounded annually at 6%. Periods Present Value of $1 Discounted at 6% per Period 1 0.943 2 0.890 3 0.840 4 0.792 5 0.747 What amount should be deposited in a bank today to grow to $9400 three years from today?

Answer 1

$7,896

Step-by-step explanation:

In order to solve this problem we have to use the present value of $1 discounted at 6% for 3 years = 0.84

We can determine the amount that we should deposit today to have $9,400 in three years by multiplying $9,400 times 0.84 = $7,896

If you want to check your answer you can use the future value formula:

future value = $7,896 x 1.06³ = $7,896 x 1.191 = $9,404

The result is slightly different due to rounding numbers, 0.84 should have been 0.839619283. If we use all the decimals then our answer should be $7,892.421261