Question

If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit?

a. $1,000
b. $1,040
c. $1,030
d. $889
e. $885

Answer 1

d. $889

Step-by-step explanation:

The computation of the deposit amount is shown below:

Principal = Amount ÷ (1 + interest rate)^number of years

= $1,000 ÷ (1 + 4%)^3 years

= $1,000 ÷ 1.124864

= $889

Simply we divide the amount by the interest rate and the number of years so that the exact value can arrive