This set of problems is designed to be calculated using the Excel or financial calculator

Finance Nov 09, 2020

This set of problems is designed to be calculated using the Excel or financial calculator. You can also use algebraic formulas. Do not use financial tables to calculate these problems.

Stephen plans to purchase a car 4 years from now. The car will cost $43,158 at that time. Assume that Stephen can earn 8.60 percent (compounded monthly) on his money. How much should he set aside today for the purchase?

Round the answer to two decimal places.

Your Answer:

Expert Solution

Computation of Present Value using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value = ?

Rate = 8.60%/12 = 0.7167% compounded monthly

Nper = 4 years * 12 = 48 months

PMT = 0

FV = $43,158

Substituting the values in formula:

=-pv(0.7167%,48,0,43158)

PV or Present Value = $30,633.51

So, he should set aside $30,633.51 today for the purchase.

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