The present value of a $4,350 savings account that will earn 8 percent interest for 7 years.
To find the present value of a savings account, we need to use the formula for present value which is:
PV = FV / (1 + r)^n
Where:
PV = Present Value (the amount we want to find)
FV = Future Value (the amount of the savings account)
r = Interest rate per period (expressed as a decimal)
n = Number of periods
In this case, the future value (FV) is $4,350, the interest rate (r) is 8% or 0.08, and the number of periods (n) is 7 years.
Substituting these values into the formula, we get:
PV = 4,350 / (1 + 0.08)^7
To calculate this, we need to raise (1 + 0.08) to the power of 7, then divide $4,350 by that result.
Calculating (1 + 0.08)^7 = 1.7170709.
Now we divide $4,350 by 1.7170709:
PV = 4,350 / 1.7170709 = $2,530.34
Therefore, the present value of a $4,350 savings account that will earn 8 percent interest for 7 years is approximately $2,530.34.