Question

# Present Value Computation Pete Frost made a deposit into his savings account 3 years ago, and...

Present Value Computation
Pete Frost made a deposit into his savings account 3 years ago, and earned interest at an annual rate of 8%. The deposit accumulated to \$21,000. How much was initially deposited assuming that the interest was compounded (a) annually, (b) semiannually, and (c) quarterly?
Use Excel or a financial calculator for computation. Round your answer to nearest dollar.

(a)-The amount deposited if the interest was compounded annually

Present Value = Future Value / (1 + r)n

= \$21,000 / (1 + 0.04)3

= \$21,000 / (1.08) 3

= \$21,000 / 1.259712

= \$16,670.48

(b)-The amount deposited if the interest was compounded semi-annually

Present Value = Future Value / (1 + r)n

= \$21,000 / [1 + (0.08/2)]3x2

= \$21,000 / (1.04)6

= \$21,000 / 1.265319018

= \$16,596.61

(c)-The amount deposited if the interest was compounded quarterly

Present Value = Future Value / (1 + r)n

= \$21,000 / [1 + (0.08/4)]3x4

= \$21,000 / (1.02)12

= \$21,000 / 1.268241795

= \$16,558.36

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