Question

You’ve decided to buy a new computer that costs $1,500. But Best Buy will let you take the computer home without making paying the full price immediately. Rather, Best Buy will let you pay $500 now, and $500 at the end of each of the next two years. Your bank offers you a savings account that earns 2% annually, and a two-year certificate of deposit (CD) that earns 5% annually. Note that to earn the 5% on the CD, you have to leave your money there for the full two years. How much money do you need today to make sure you can make all the payments to Best Buy?

Answer choices-

a)1429.71 b)1470.78 c)1443.71 d)1500

Answer 1

	we need to have present value today to pay for computer
	i	ii	iii=i*ii
Year	Cash flow	PVIF @ 2%	Present value
0	500	1	500.00
1	500	0.980392157	490.20
2	500	0.961168781	480.58
	Total		1,470.78
	therefore amount required =	$   1,470.78
	Ans =		$   1,470.78