Question

Present value: Elizabeth Sweeney wants to accumulate $12,000 by the end of 12 years. If the annual interest rate is 7 percent, how much will she have to invest today to achieve her goal

Answer 1

Answer:

$5,333

Explanation:

To find how much Elizabeth Sweeney will have to invest today to achieve her goal, you have to calculate the present value using the following formula:

P= F/((1+i)^n)

P= present value

F= future value: $12,000

i= interest rate: 7%

n= number of times: 12

P= 12,000/((1+0.07)^12)

P= 12,000/2.25

P= 5,333

Answer 2

Answer:

The answer is: $5,328.12 (to 2 decimal places)

Explanation:

The question is asking us to calculate the present value of an investment that will yield $12,000 after 12 years at an annual interest rate of 7%.

First of all, let us state the formula, and it is stated thus:

PV = FV ÷ $(1+\frac{i}{n} )^{(n*t)}$

where:

PV = present value

FV = future value = $12,000

i = interest rate in decimal = 7% = 0.07

n= number of compounding period per year = 1

t = number of years to take into consideration = 12

PV = 12,000 ÷ $(1 + \frac{0.07}{1} )^{(12*1)}$

PV = 12,000 ÷ $1.07^{12}$ = $5,328.12

Therefore, she will have to save $5,328.12 to get $12,000 after 12 years at an annual interest rate of 7%