Using the future value formula:
FV = PV * (1 + r/n)^(n*t)
where:
FV = future value (desired purchase price) = $25,000
PV = present value (amount to invest today) = ?
r = annual interest rate = 9%
n = number of times compounded per year = 12 (monthly)
t = time in years = 5
Substituting the values:
$25,000 = PV * (1 + 0.09/12)^(12*5)
Simplifying:
$25,000 = PV * 1.629
Dividing both sides by 1.629:
PV = $15,360.41
Therefore, Manuel should invest $15,360.41 in CD's today to have enough money to purchase the Subaru Impreza in 5 years, assuming an annual interest rate of 9% compounded monthly.
Manuel wants to purchase Subaru Impreza for $25,000 in 5 years
How much money should he invest in CD's today if the annual interest rate is 9%, compounded monthly? Show Work
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