Jason's opportunity cost rate is 8 percent compounded annually. How much must he deposit in an account today if he wants to receive $5,400 at the end of each of the next 10 years? Use a financial calculator to determine the amount to be deposited today.
Do you have a financial calculator? Do you know how to use it? I don't have one, so can't do it for you.
no
To determine the amount Jason must deposit today, we can use the formula for the present value of an ordinary annuity:
PV = PMT * (1 - (1 + r)^(-n)) / r
where:
PV = Present value (the amount Jason needs to deposit today)
PMT = Payment received ($5,400)
r = Opportunity cost rate (8% or 0.08 as a decimal)
n = Number of years (10)
Using a financial calculator, follow these steps:
1. Press the "FV" or "Future Value" button and enter 5400 as the payment received.
2. Press the "i" or "Interest Rate" button and enter 8 as the interest rate.
3. Press the "N" or "Number of Periods" button and enter 10 as the number of years.
4. Press the "CPT" or "Compute" button for the present value (PV).
After performing these steps, the financial calculator should display the amount Jason needs to deposit today as the present value (PV).