# If a person needs $20,000 in 5 years from now and interest rates are currently 6%, how much do... ## Question: If a person needs$20,000 in 5 years from now and interest rates are currently 6%, how much do they need to invest today if interest is compounded annually?

a) $14,945. b)$14,683.

c) $15,301. ## Present value: Present value refers to the current value of any sum of money to be received after a certain period of time. It is found out by discounting the future value at a given interest rate for a certain period of time. ## Answer and Explanation: The correct choice is Option A. As per time value of money, Present value = Future value / (1 + Rate)^Number of years Here, Present value = Investment required today Future value =$20,000.00

Rate = 6% = 0.06

Number of years = 5

So,

Investment required today
= 20,000 / 1.06^5
= \$14,945.16