Question

Periods Future Value of 1 at 8%

1 1.080
2 1.166
3 1.260
4 1.360
5 1.469
What amount should be deposited in a bank account today to grow to $25,000 three years from today?
a. $25,000 × 1.260
b. $25,000 × 1.260 × 3
c. $25,000 ÷ 1.260
d. $25,000 ÷ 1.080 × 3

Answer 1

To calculate the amount to be deposited today to grow to $25,000 in three years at an 8% interest rate, divide $25,000 by the future value factor for three years at 8%, which is 1.260. The correct answer is $25,000 ÷ 1.260. Option C is correct.

Step-by-step explanation:

The student is looking to find out what amount should be deposited in a bank account today to grow to $25,000 three years from today at an interest rate of 8%. Based on the table provided, the future value factor for 8% over 3 periods (years) is 1.260. To find the present value that needs to be deposited, we need to rearrange the future value formula, which results in dividing the future amount by the future value factor associated with the 3-year period at 8%.

The correct answer to the question is c. $25,000 ÷ 1.260. This calculation will provide the present value that, when invested at an 8% interest rate compound annually over three years, will amount to $25,000.