Question

(1 point) In 2 years Steven plans to deposit $4000 and another $3000 8 years from now. If money is worth j4=4%j4=4%, calculate an equivalent single amount at the end of 5 years (from today).

Answer 1

Given that,

Steven needs to deposit $4000 in 2 years, and another $3000 in 8 years.

interest rate = 4%, compounded quarterly,

to calculate an equivalent single amount at the end of 5 years from today,

Value of 4000 in future at year 5 using formula

FV = PV*(1+r/n)^(n*t)

=> value of 4000 at year 5 = 4000*(1 + 0.04/4)^(4*3) = $4507.30

Similarly, Value of 3000 at year 5 using formula

PV = FV/(1+r/n)^(n*t)

=> Value of 3000 at year 5 = 3000/(1 + 0.04/4)^(4*3) = $2662.35

So, a single payment = 4507.30 + 2662.35 = $7169.65

So, an equivalent single amount at the end of 5 years (from today) is $7169.65