Question

How much money would you have to deposit today in order to have $5,000 in three years if the discount rate is 6 percent per year? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Answer 1

$4,198.10

Step-by-step explanation:

Compounding and discounting are the methods used to determine the present and future value of money.

Compounding shows the Future value of an amount today while discounting shows the present value of a future amount.

Fv = Pv ( 1 + r )^n

where

Fv = Future value

Pv = Present value

r = discount rate

n = time

5000 = Pv ( 1 + 0.06)^3

Pv = 5000(1.06)^-3

= $4,198.10