Margaret wants to buy a car when she graduates from Central University 6 years f
ID: 2550736 • Letter: M
Question
Margaret wants to buy a car when she graduates from Central University 6 years from now. She believes that she will need $30,300 to buy the car.
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(a) Calculate how much money Margaret must put into her savings account today to have $30,300 in 6 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. 58,975.)
(b) Calculate how much money Margaret must put into her savings account today to have $30,300 in 6 years, assuming she can earn 14% compounded semiannually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,975.)
Explanation / Answer
Req A: Future value of deposit at the end of 6 years: 30300 Interest rate 14% FVF for Year-6 2.19497 Therefore, Amount to be dposited Today is (30300/2.19497): $13804.29 Req B: Now Interst rate is 14% compunded Semi Annually Therefore , Interest is taken as 7% for period of 12 Future value of deposit at the end of 6 years: 30300 Interest rate 7% FVF for 12 periods 2.252192 Therefore, Amount to be deposited today (30300/2.2522): $13,453.5