Question

You need to have $32,000 in 14 years. You can earn an annual interest rate of 3 percent for the first 4 years, 3.6 percent for the next 3 years, and 4.3 percent for the final 7 years. How much do you have to deposit today

Answer 1

Answer:

PV= 19,042.84

Explanation:

Giving the following information:

You need to have $32,000 in 14 years. You can earn an annual interest rate of 3 percent for the first 4 years, 3.6 percent for the next 3 years, and 4.3 percent for the final 7 years.

To calculate the initial deposit, we need to use the following formula for each interest rate:

PV= FV/(1+i)^n

Last 7 years:

PV= 32,000/(1.043^7)

PV= $23,831.96

Year 4 - 7:

PV= 23,831.96/1.036^(3)

PV= 21,432.88

Finally, for year 0 to 4:

PV= 21,432.88/ 1.03^(4)

PV= 19,042.84