Brenda young desires to have $15,000 eight years from now for her daughter's college fund. if she will earn 6 percent (compounded annually) on her money, what amount should she deposit now? use the present value of a single amount calculation.

The answer is: $9,411.19 (rounded to 2 decimal places)

Explanation:

Brenda needs to discount the present value of future anticipated cash flows to determine the value that she should deposit in the current period.

The time value of money principle dictates that the value of money today is worth more than its future equivalent in terms of the purchasing power. It is for this reason that interest is charged in future after lending or borrowing money in the current period. In order to compute the present value of the money, the compound interest formula needed is as follows:

FV = PV (1 + r) ^nt where FV is the future value and PV is the present value, n is the number of times interest is applied per period, r is the interest rate and t is the number of time periods. In order to calculate present value, it has to be the subject of the formula:

PV = FV / (1 + r) ^nt

= $15, 000 / (1 + 0.06) ^ (1*8)

= $15, 000/1.5938481

= $9, 411.18557

Present value PV = FV (1 / (1+r) ^n)

PV = Present Value

FV = Future Value

r = rate

n = number of years

Just plug in the numbers and calculate.