Jazelle Momba wants to visit her family in Zimbabwe in 2022, which is 8 years fr

Question

Jazelle Momba wants to visit her family in Zimbabwe in 2022, which is 8 years from now. She knows it will cost approximately $7,000 including flight costs, on-the-ground costs, and extra spending money to stay for 4 months. If she opens an account that compounds interest at 6% semiannually, how much does she need to deposit today to cover the total cost of her visit ?
Deposit $_________

Show work Jazelle Momba wants to visit her family in Zimbabwe in 2022, which is 8 years from now. She knows it will cost approximately $7,000 including flight costs, on-the-ground costs, and extra spending money to stay for 4 months. If she opens an account that compounds interest at 6% semiannually, how much does she need to deposit today to cover the total cost of her visit ?
Deposit $_________

Show work
Deposit $_________

Show work

Explanation / Answer

Solution:

The question is related to time value of money i.e. present value and future value of amount.

Here,

Rate of Interest (R) = 6%

Interest Compounded Semi annually, hence we need to calculate Semi Annual Interest Rate = 6/2 = 3%

Number of time interest to be paid during the period (i.e. in 8 years) = 8*2 = 16 times

Future Value of Deposit Amount = $7,000

Future Value of Amount = Present Value x (1 + R)n

$7,000 = Present Value x (1 + 0.03)16

$7,000 = Present Value x 1.604706

Present Value = $7,000 / 1.604706 = $4,362.17

So, Jamella Momba needs to deposit today $4,362.17 to cover the total cost of her visit.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

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