Chapter 4, Problem 8PROB

Summary Introduction

The required amount to buy a new car is $22,000 and the amount to be saved for 3 years at an opportunity cost rate 12% compounded monthly.

Present value is the current value of future investment or series of future payments at a predetermined interest rate for a specified period.

$PV=\frac{FV}{{\left(1+\frac{r}{m}\right)}^{n\times m}}$

Here,

The present value is “PV”.

The future value is “FV”.

The interest rate is “r”.

The maturity period of time period is “n”.

The no of compounding is “m”.