Question

Rupan and Fruvan both want to have $5,000 in three years. Rupan expects to earn 8% on his investments and Fruvan expects a 7% rate of return. How much money would each have to invest today?

Answer 1

Rupan
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
= $5000/( 1+0.08)^3
=5000/1.25971
= $3969.16
Fruvan
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
= $5000/( 1+0.07)^3
=5000/1.22504
= $4081.49