159k views
8 votes
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

User Stephbu
by
7.4k points

1 Answer

11 votes

Answer:

$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

User Mayconbordin
by
7.8k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories