If you need $25,000 in 10 years, how much must you deposit today, if your money will earn 6% per year, compounded annually?
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A. B. C. D. E.B
On the BAII Plus, press 10 N, 6 I/Y, 0 PMT, 25000 FV, CPT PV. On the HP12C, press 10 n, 6 i, 0 PMT, 25000 FV, PV. Note that the answer will be shown as a negative number.
To calculate the amount you must deposit today, we can use the formula for calculating the present value of a future sum of money. The formula is:
PV = FV / (1 + r)^n
Where: PV = Present Value (the amount you need to deposit today) FV = Future Value (the amount you want to have in 10 years, which is $25,000) r = Interest rate per compounding period (6% or 0.06 in this case, compounded annually) n = Number of compounding periods (10 years in this case)
Let's plug in the values into the formula and solve for PV:
PV = $25,000 / (1 + 0.06)^10 PV = $25,000 / (1.06)^10 PV = $25,000 / 1.790847
Using a calculator, we find that PV is approximately $13,959.87.
Therefore, the correct answer is B. $13,959.87.