If you want $1,000 three years from now and you earn 4 percent on your savings, how much do you need to deposit?

a. $1,000

b. $1,040

c. $1,030

d. $889

e. $885

d. $889

Explanation:

The computation of the deposit amount is shown below:

Principal = Amount : (1 + interest rate) ^number of years

= $1,000 : (1 + 4%) ^3 years

= $1,000 : 1.124864

= $889

Simply we divide the amount by the interest rate and the number of years so that the exact value can arrive