ABC wants to have $20,000 in a savings account four years from now. What amount must...

ABC wants to have $20,000 in a savings account four years from now. What amount must ABC deposit into an account today if the account will earn 10% interest, and interest is compounded semiannually?

Present Value of $1

Periods	5%	6%	8%	10%
4	0.823	0.792	0.735	0.683
5	0.784	0.747	0.681	0.621
6	0.746	0.705	0.630	0.564
7	0.711	0.665	0.583	0.513
8	0.677	0.627	0.540	0.467
9	0.645	0.592	0.500	0.424
10	0.614	0.558	0.463	0.386

Present Value of Annuity of $1

Periods	5%	6%	8%	10%
4	3.546	3.465	3.312	3.170
5	4.329	4.212	3.993	3.791
6	5.076	4.917	4.623	4.355
7	5.786	5.582	5.206	4.868
8	6.463	6.210	5.747	5.335
9	7.108	6.802	6.247	5.759
10	7.722	7.360	6.710	6.145

		$6,309
		$13,540
		$13,660
		$3,095

Solutions

Expert Solution

Correct Option D i.e. $3095

Future value = Present value *(PVAF, 5%, 8 Period)
20000 = Present value * 6.463
present value = 20000/6.463
3,095


As we know interest is compounded semiannual but in given table its annually. We need to convert the interest rate
Annual interest rate	10%
Semiannual interest rate	5%	(10/2)

ekkarill92 answered 1 year ago

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