Homework Answers
Money Alvin has now = 16,000
From 16,000, he has to save some amount so that after 4 yours he will get 12,000 to purchase a car when he become a graduate. In simple language, after 4 yours he need 12,000. How much he has to deposit in a saving so that he can get 12,000 at the 4th year. The saving account earns 2% interest.
In this question, we can calculate the Present Value of 12,000 what he wants at the 4th year at interest of 2%
PV = 12,000 (1 + 0.02) -4
PV = 11,086
This means out of 16,000 he has to deposit 11,086 in the saving earning 2% interest so that after 4 years he can get 12,000 to purchase the car.
Remaining amount of 4,914 (16,000 - 11086) he can spend now out of 16,000.
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