Question

I need help solving this problem.

Bill O'Brien would like to take his wife, Mary, on a trip four years from now to Europe to celebrate their 40th anniversary. He has just received a $18541 inheritance from an uncle and intends to invest it for the trip. Bill estimates the trip will cost $25121 and he believes he can earn 5.00% annual interest, compounded annually, on his investment. How much will Bill need to pay, in additional to his inheritance, toward the trip in four years?  Answer in dollars and cents ($ 0.00 ).

Answer 1

Answer = $2126.11

Explanation:

If bill need $25121 in 4 years than we need to find the present value of $25121 at 5% rate.

Present value = FV/(1+r)n

PV = Present value, also known as present discounted value, is the value on a given date of a payment.
FV = This is the projected amount of money in the future
r = the periodic rate of return, interest or inflation rate, also known as the discounting rate.
n = number of years

= 25121/(1+.05)4

= $20667.11

so in addition to $18541 given by his uncle he will need to invest 2126.11( 20667.11-18541) more