Question

if a company requires $80,000 to meet a purchase commitment in three years, how much would the company need to put into a fund today earning 5% to be able to have the required funds available at that time? note: do not use a negative sign with your answer.

Answer 1

To have the required funds available in three years, the company would need to put approximately $70,200 into a fund today.

Step-by-step explanation:

To calculate the amount the company would need to put into a fund today, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where A is the future value, P is the principal (or initial amount), r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years.

In this case, the company requires $80,000 in three years and the fund earns 5% interest. So, we can substitute the values into the formula:

A = P(1 + 0.05/1)^(1*3)

$80,000 = P(1 + 0.05)^3

Solving for P:

P = $80,000 / (1 + 0.05)^3

P ≈ $70,200

Therefore, the company would need to put approximately $70,200 into the fund today to have the required funds available in three years.