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18 February, 20:55

You need to have $32,750 in 5 years. You can earn an annual interest rate of 6 percent for the first 3 years, and 6.6 percent for the next 2 years. How much do you have to deposit today?

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  1. 18 February, 22:48
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    The initial deposit today must be $24,197.99

    Explanation:

    We need $ 32,750 in Five years it means we have to calculate the present value of this value

    Years PVF of $ 1 Remarks

    Year 1 0.94340 = 1 / 1.06

    Year 2 0.89000 Year 1 Value / 1.06

    Year 3 0.83962 Year 2 Value / 1.06

    Year 4 0.78764 Year 3 Value / 1.066

    Year 5 0.73887 Year 4 Value / 1.066

    Present Value of investment = PVF of $ 1 at the end of 5th year X $ 32,750

    Present Value of investment = 0.73887 X $ 32750

    Present Value of investment = $ 24,197.99

    Answer = $ 24,197.99
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