Question

Lindsay needs to make some house repairs in four years that will cost $8,000. She has some money in an account earning 8% annual interest. How much money needs to be in the account today so she will have enough to pay for the repairs

Answer 1

$5,882

Explanation:

To calculate the money Lindsay needs today, you can use the following formula to calculate the present value:

PV=FV/(1+i)^n

PV= present value

FV= future value= $8,000

i= interest rate= 8%

n= number of periods= 4

PV= 8,000/(1+0.08)^4

PV=8,000/1.08^4

PV=8,000/1.36

PV= 5,882

According to this, Lindsay will need to have $5,882 in the account today so she will have enough to pay for the repairs in four years.