Final answer:
The question requires calculating the present value of $20,000 due in 3 years at a 3% annual interest rate compounded monthly. This is done by using the formula for present value and inserting the relevant values, followed by carrying out the arithmetic operations to solve for the present value, ensuring to round the final answer to the nearest cent as per the instructions.
Step-by-step explanation:
The subject is asking to calculate the present value of $20,000 due in 3 years at an interest rate of 3% per year compounded monthly. To determine the present value, the formula to use is:
Present Value = Future Value / (1 + r/n)nt
Where:
- Future Value = $20,000
- r = Annual interest rate (0.03)
- n = Number of times the interest is compounded per year (12)
- t = Number of years (3)
Plugging the values into the formula, we get:
Present Value = $20,000 / (1 + 0.03/12)12*3
Calculating the power and division, we then find the present value. Remember to round to the nearest cent as instructed.
This process uses the concept of time value of money, which reflects how money available at the present is worth more than the same amount in the future due to its potential earning capacity.