finance word problem

Question

A person wants to have $3000 available to spend on a trip 4 years from now. If such funds could be expected to earn 7 percent, how much should be invested in a lump sum to realize the $3000 when needed?

Answer 1

The question has to indicate what kind of compounding they are using, continously, annual, semi-annually, monthly. Assuming compounded continously, you need to use the related formula, A=Pe^(rt), A is future value, P is present value, r is the rate, and t is time.

 

3000=Pe^(.07x4) solving for P, answer is $2267.36