A company needs to have $70,000 in cash at the end of four years. The company can invest the cash now in a money market account that will return 6% interest compounded annually. Using a 6% interest rate, the implied annual interest is $70,000 × 0.06 = $4,200.
The following information is given:
-Assuming an annual interest rate of 4% for 6 years is appropriate, the present value of the deposit is $70,000 × 0.79031 = $55,322.
-Assuming an annual interest rate of 6% for 4 years is appropriate, the present value of the deposit is $70,000 × 0.79209 = $55,446.
-Assuming an annual interest rate of 6% for 6 years is appropriate, the present value of the deposit is $70,000 × 0.70946 = $49,662.