Question 7 35 points Save Answer Suppose that you would like

Question 7 3.5 points Save Answer Suppose that you would like to put money in an account today to make sure your younger sibling has enough money in 10 years to buy a car. If you would like to give your sibling $20,000 in 10 years, and you know you can get 5% interest per year from a savings account during that time, how much should you put in the account now? Attach File Browse My Computer Browse Content Collection

Solution

Let t denote the time period.

FV denotes future value.

i denotes interest rate per year.

PV denotes present value.

t = 10

FV = 20000

i = 0.05

FV = PV(1 + i )¹⁰

or, PV = FV/(1 + i )¹⁰

PV = 20000/(1 +0.05)¹⁰

PV = 20000/(1.05)¹⁰

PV =12,278.26

He needs to save $12,278.26 today.