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Present Value

A father wants to buy his daughter a new car on her 18th birthday. His daughter just turned 13, and the father estimates the new car will cost $28,000 at the time of purchase. Rates on 5-year certificates of deposit are currently at 5%, with quarterly compounding. How much does the father need to deposit today to have $28K at maturity?

a. $10,553
b. $21,840
c. $25,766
d. $27,424

Solution Summary

The solution calculates the amount that has to be deposited now so that at maturity it becomes $28K at 5% return, compounded quarterly.