You are considering two savings options. Both options offer a rate of return of 7.6 percent, compounded weekly. The first option is to save $2,500, $2,500, and $3,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today?

Question

Brutus

Mathematics

11 April, 13:40

You are considering two savings options. Both options offer a rate of return of 7.6 percent, compounded weekly. The first option is to save $2,500, $2,500, and $3,000 at the end of each year for the next three years, respectively. The other option is to save one lump sum amount today. You want to have the same balance in your savings account at the end of the three years, regardless of the savings method you select. If you select the lump sum method, how much do you need to save today?

+3

Answers (1)

Know the Answer?

Linus · Answer 1

If you select the lump sum method, you will save $7.43

Step-by-step explanation:

PV = ($2500/1.076) + ($2500/1.076) + ($3000/1.076)

PV = $ (2.32 + 2.32 + 2.79) = $7.43