You need to have $33,250 in 11 years. You can earn an annual interest rate of...

You need to have $33,250 in 11 years. You can earn an annual interest rate of 4 percent for the first 6 years, and 4.6 percent for the next 5 years. How much do you have to deposit today?

Expert Solution

Present value of future value at end of year 6 = PVF4.6%,5 *Future value

= .79862 * 33250

= $ 26554.12

Present value today =PVF 4%,6* Present value of future value at end of year 6

= .79031* 26554.12

= $ 20985.99 (rounded to 20986)

Amount to deposit today = $ 20986

**Find present value factor using the formula 1/(1+i)^n or using financial calculator where i = 4 or 4.6% respectively and n = 6 or 5 period respectively.

jeff jeffy answered 7 months ago

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