Exercise 93 Margaret wants to buy a car when she graduates f

Exercise 9-3 Margaret wants to buy a car when she graduates from Central University 4 years from now. She believes that she will need $29,700 to buy the car. Click here to view the factor table (a Calculate how much money Margaret must put into her savings account today to have $2 700 in 4 years ass n she can earn or compo nded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, eg. 58,975.) Amount (b) Calculate how much money Margaret must put into her savings account today to have $29,700 in 4 years, assuming she can earn 10% compounded semiannually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to o decimal place, e.g. 58,975) Amount$ Click if you would like to Show Work for this question: Open Show Work

Solution

a.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

29700=P(1.1)^4

P=$29700/1.1^4

=$29700*0.6830

=$20285(Approx).

2.We use the formula:
A=P(1+r/200)^2n
where
A=future value
P=present value
r=rate of interest
n=time period.

29700=P(1+0.1/2)^(2*4)

P=29700/(1+0.1/2)^(2*4)

=29700*0.6768

=$20101(Approx).