You expect that you will need to replace your furnace in 4 yearsat a cost...

You expect that you will need to replace your furnace in 4 years at a cost of $15,777. How

much must you save today in an account that pays 3.5% APR (compounded monthly) to exactly pay the $15,777 in 4 years?

Expert Solution

The amount is computed as follows:

Present value = Future value / (1 + r)ⁿ

So, the amount will be as follows:

= $ 15,777 / (1 + 0.035 / 12) ^{4 x 12} (Since the interest is compounded monthly, hence r is divided by 12 and n is multiplied by 12)

= $ 13,718.66 Approximately

jeff jeffy answered 2 years ago

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You expect that you will need to replace your furnace in 4 yearsat a cost...

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