Chapter 7A, Problem 1YT

To determine

Compute the amount that should be deposit today to have $5,000 in five years at an annual interest rate of 10%.

Explanation of Solution

Compute the present value of $5,000 in five years:

$\begin{array}{c}\text{Present value = Future value × Present value factor}\\ \text{Present value = \$5,000 × 0}\text{.62092}\\ \text{= \$3,104}\text{.60}\end{array}$

Therefore, the present value of $5,000 in the five years is $3,104.60.