Question

you need to have $31,750 in 11 years. You can earn an annual interest rate of 6 percent for the first 6 years, and 6.6 percent for the next 5 years. How much do you have to deposit today?

Answer 1

Answer:

Initial deposit= $16,260.08

Explanation:

Giving the following information:

Future value= $31,750 in 11 years.

You can earn an annual interest rate of 6 percent for the first 6 years, and 6.6 percent for the next 5 years.

To calculate the initial deposit, we need to use the following formula for each interest rate:

PV= FV/(1+i)^n

Last 5 years:

PV= 31,750/(1.066^5)= 23,065.23

First 6 years:

PV= 23,065.23/1.06^6= $16,260.08