Question

You and your sister are planning a large anniversary party 3 years from today for your parents' 50th wedding anniversary. You have estimated that you will need $4,500 for this party. You can earn 2.5 percent compounded annually on your savings. How much would you and your sister have to deposit today in one lump sum to pay for the entire party?

Answer 1

Answer:

$4,178.6973

Explanation:

The party has to be recognized three years from today.

That means that interest can be earned for three years @ 2.5% compounded annually.

The three years compounded value of $1 @ 2.5% interest compounded annually = $1.07689

Thus, value of $4,500 today = $\frac{4,500}{1.07689} = 4,178.6973$

Thus, if $4,178.697 is invested today in this savings then no further amount would be needed three years after such investment.

Answer 2

The amount that you and your sister have to deposit today in one lump sum to pay for the entire party is $4,178.

Deposit

First step

Using the compound interest table to find 3 years compounded value of $1 at 2.5% interest

Hence:

Compounded value = $1.07689

Second step

Deposit today:

Deposit today= $4,500/$1.07689

Deposit today=$4,178

Inconclusion the amount that you and your sister have to deposit today in one lump sum to pay for the entire party is $4,178.

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