Claire wants to buy a car when she graduates from North State University 5 years

Question

Claire wants to buy a car when she graduates from North State University 5 years from now. She believes that she will need $29,500 to buy the car. Click here to view the factor table.

(a) Calculate how much money Claire must put into her savings account today to have $29,500 in 5 years, assuming she can earn 14% compounded annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Amount $

(b) Calculate how much money Claire must put into her savings account today to have $29,500 in 5 years, assuming she can earn 14% compounded semi-annually. (For calculation purposes, use 4 decimal places as displayed in the factor table provided and round final answer to 0 decimal place, e.g. 58,971.)

Amount $

Explanation / Answer

Answer:(a) FV=$29500

N=5 years

I=14%

PV=$29500/(1+0.14)5

=$29500/1.925414=$15321.380

Answer: (b) FV=$29500

N=10 years [5*2=10 years]

I=7% [(14/2)=7%]

PV=$29500/(1+0.07)10

=$29500/1.967151=$14996.31

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