The Solution to This Problem Requires Time Value of Money

question 70

Multiple Choice

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college 4 years from now.If he opens a savings account and earns 3% on his money, compounded annually, how much will he have to invest now?

• A) $2,520
• B) $2,664
• C) $2,910
• D) $3,000

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Definitions:

Excess Cash

The amount of cash a company possesses that exceeds the minimum level needed to maintain its operations and investment plans.

Brokers' Commissions

Fees paid to brokers for their role in facilitating transactions, such as buying or selling securities, real estate, or insurance products.

Temporary Investments

Assets purchased with the intention to be sold in the short term for profit, such as stocks or bonds, not intended for long-term holding.

Held-to-maturity Securities

Financial instruments that an investor intends and is able to hold until maturity, carrying fixed or determinable payments and fixed maturity.