Question

You will require $620 in 5 years. If you earn 5% interest on your funds, how much will you need to invest today in order to reach your savings goal? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Answer:

Present value of money invested = 485.79 (Approx)

Explanation:

Given:

Future value = $620

Number of years = 5 years

Present value = ?

Rate of interest = 5% = 5/100 = 0.05

Computation of Present value of money invested:

Present value = $\frac{Future\ value}{(1+r)^n}$

$Present \ value = \frac{Future\ value}{(1+r)^n}\\\\Present \ value = \frac{620}{(1+0.5)^5}\\\\Present \ value = \frac{620}{(1.5)^5}\\\\Present \ value = \frac{620}{1.277628156}\\\\Present \ value =485.786224$

Present value of money invested = 485.786224

Present value of money invested = 485.79 (Approx)