[chaz1]

This is the problem:
In order to receive $12,000 at the end of 3 years and $10,000 a the end of 5 years,how much must be invested now if you can earn 14% rate of return?

a)12,978
b)8,100
c)13,290
d)32,054

This is my results:

I used 1.14 for year 1
Used 1.30 for year 2
Used 1.482 for year 3


Start year 1 year 2 year 3
12,978 14,794.93 16,871.40 19,233.40
8,100 9,234 10,530 12,004.20
13,290 15,150.60 17,277.00 19,695.78
32,054 36,541.56 41,6700.20 47504.03

None of the results give me the correct answer. Any help please

[ebaines]

You are correct - none of the answers is the right one. The problem states that you have $10,000 after 3 years and $12,000 after five - but that would be a 9.5% return overthose two years, not 14%. Something ain't right here.

[ebaines]

OK , I got it now - I think you and I both mis-interpreted the question. What it is asking is this: how much do you need to invest today so that after 3 years you can withdraw $10,000, and after 2 additional years have a balance of $12,000 remaining. The solution is indeed one of the choices you were given. Post back to let us know if you get the answer.

[chaz1]

Thank you for taking the time in replying, but I'm still lost

[ebaines]

Suppose you deposited $11,000 in the account earning 14% interest. After three years it grows to 11000*1.14^3 = $16297. At that point you take out $12K, leaving $4297in the account. You then let that grow at 14% for two more years, and at the end of year 5 that money would grow to $4297*1.14^2 = $5584. That's not equal to $10,000, so the initial guess of $11,000 is wrong. Now, can you figure out which of the choices you were given is correct? Also, you should be able to set up an equation for this problem, so that you can get the answer even if you're not given multiple choices.