Question

I start working on my first job. I realize I need $20,000 in 3 years to buy a new car. If I can earn 4.7% annually how much do I need to invest today? CO Ans: FV 20,0000; I/Y 4.7; N 3; CPT PV -17,425.69

First, disregard the typo 20,000 instead of 20,0000. I plugged these numbers into my calculator and got a completely different answer. I got -13,099.12. Anyone know what this mistake may be? Where did I go wrong? And is there a way to solve this using formulas instead of simply relying on the calculator?

Answer 1

The answer $ 17425.69 is correct. May be you had not cleared the memory before the calculations hence the number threw a different result.

FV = 20000, I/Y = 4.7 , N=3 , CPT PV - 17425.69

For clearing the memory you can use the following inputs in calculator.

Press PV > 2ND > ENTER > CLR > TRY AGAIN TO FIND THE ANSWER

Also Presesnt value can be calculated using the formula also

Presnt value = Future value / ( 1 + r )^ n

where the r is the interest rate and n is the number of years

Present value = 20000 / ( 1.047)^3

= 20000 / 1.147730823

= $17425.69