Question

Hello, Are you able to help?

4.   Determining the Required Deposit. How much should you deposit today to have $7,000 in five years if your investment earns a rate of 3% per annum?

A:

Answer 1

Solution :
	Amount to be deposited today is 6038.26
Working Notes:
	Annual interest rate at which today deposit is compounded annually to future value in 5 years to EUR 7,000 , Hence we have to used concept future value of present value of deposit to get the annual rate.
	Using future value formula
	FV= C0 x (1+r)^n
	C0 = value of today deposit= Present value = ??
	FV=Future value of the deposit after 5 years =$7000
	r= rate per period= 3% p.a
	n = no. Of periods = no. of years = 5
	Using future value formula
	FV= C0 x (1+r)^n
	7000 = Today deposit value x (1+ 3%)^5
	Today deposit value = 7000/(1+ 3%)^5
	Today deposit value =6038.261491
	Today deposit value =6038.26
Please feel free to ask if anything about above solution in comment section of the question.