Question

How much must be deposited today in an account earning 6% annually to accumulate a 20% down payment to use in purchasing a car one year from now, assuming that the car's price one year from now is $20,800?

Select one:

a. $3,782

b. $3,774

c. $4,080

d. $3,925

Answer 1

Company should have in an account 20% of $20,800

Which is $20,800 * 20% = $4,160

Interest rate = 6%

Future value = Present value * (1 + R)

$4,160 = Present value * (1 + 0.06)

Present value = $3,924.53

or Present value = $3,925 (rounded off to nearest whole number)

option 'D' is correct