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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Use Future Value and Present Value Tables to Apply Compound Interest to Accounting Transactions

Ed Walker wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college in 4 years.

Required:

If Ed opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now? (Note: Round answers to two decimal places.)

To determine

Concept introduction:

Time value of money:

Time value of money is the concept that differentiates the value of money received today and the value of same money received in future. According to this concept, the same amount of money to be received in future shall have lower present value (value of the money today) due to the interest that could be earned on that money.

To calculate:

The amount to be invested today.

Explanation

The amount to be invested today is calculated as follows:

Future value (A) $ 3,000
Annual return % 3%
Num...

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