Question

Carrie wants to go on her family reunion in four years. The cost of the cruise they are planning to take is $5,000. She has found an account with a 7% compounding interest rate, but she is unsure how much money to invest now so that she will have the money she needs in four years. How much should she invest now

Answer 1

Answer:

She Should Invest $3,815 now.

Explanation:

Future value is the accumulated value of principal and compounded interest earned in specific period on an specific return rate applied to present value. It is calculated by following formula:

FV  = PV x ( 1 + r )^n

FV = Future Value = $5000

PV  = Present Value = ?

r = return rate = 7%

n = number of years = 4 years

$5000 = PV  ( 1 + 7% )^4

$5000 = PV  ( 1 + 0.07 )^4

$5000 = PV  ( 1.07 )^4

$5000 = PV  x 1.311

PV  = $5,000 / 1.311

PV  = $3,815