Question

You would like to set aside enough money to pay for the maintenance you will need for your new car. You estimated that you will need $600 at the end of year 3, and another $700 at the end of year 5. How much do you need to set aside today in order to pay for all these expenses, assuming the bank pay 5% per year compounded annually

Answer 1

$1066.77

Step-by-step explanation:

The amount that would need to be saved today is referred to as present value.

Present value is the sum of discounted cash flows

Present value can be calculated using a financial calculator

Cash flow in year 1 and 2 = 0

Cash flow in year 3 = $600

Cash flow in year 4 = 0

Cash flow in year 5 = $700

I = 5

present value = $1066.77

To find the PV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.

3. Press compute