Compound interest
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Given below are the present value factors for $1.00 discounted at 8% for 1 to 5 periods. Each of the following items is based on 8% interest compounded annually from day of deposit to day of withdrawal.
PERIODS PRESENT VALUE OF $1 DISCOUNTED AT 8% PER
PERIOD
1 0.926
2 0.857
3 0.794
4 0.735
5 0.681
What amount should be deposited in a bank today to grow to $1000 3 years from today?
(a) $1000/0.794
(b) $1000 X 0.926 X 3
(c) ($1000 X 0.926) + ($1000 X 0.857) +
($1000 X 0.794)
(d) $1000 X 0.794
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Solution Summary
This shows how to determine the amount deposited to get a specified future value.
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