Claire wants to buy a car when she graduates from North State University 5 years
ID: 2458655 • Letter: C
Question
Claire wants to buy a car when she graduates from North State University 5 years from now. She believes that she will need $29,500 to buy the car. Click here to view the factor table.
(a) Calculate how much money Claire must put into her savings account today to have $29,500 in 5 years, assuming she can earn 14% compounded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Amount $
(b) Calculate how much money Claire must put into her savings account today to have $29,500 in 5 years, assuming she can earn 14% compounded semi-annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)
Amount $
Explanation / Answer
Answer:(a) FV=$29500
N=5 years
I=14%
PV=$29500/(1+0.14)5
=$29500/1.925414=$15321.380
Answer: (b) FV=$29500
N=10 years [5*2=10 years]
I=7% [(14/2)=7%]
PV=$29500/(1+0.07)10
=$29500/1.967151=$14996.31