Question

Karl Yates needs $13,000 to pay for the remodeling work on his house. A contractor agrees to do the work in 12 months. What is the present value of $13,000 at 5.6% simple interest in order to accumulate the $13,000 in 12 months?

Answer 1

The present value that needs to be invested at 5.6% simple interest to accumulate $13,000 in 12 months is approximately $12,310.61.

Step-by-step explanation:

To find the present value of $13,000 needed in 12 months at a 5.6% simple interest rate, we can use the formula for present value (PV) which is PV = FV / (1 + r * n), where FV is the future value, r is the interest rate, and n is the time period. In this case, FV is $13,000, the interest rate r is 0.056 (5.6% expressed as a decimal), and n is 1 year or 12 months.

The calculation would be:

PV = $13,000 / (1 + 0.056 * 1)

PV = $13,000 / (1 + 0.056)

PV = $13,000 / 1.056

PV = $12,310.61 approximately

So, the present value that Karl Yates needs to invest at 5.6% simple interest to accumulate $13,000 in 12 months is approximately $12,310.61.