Select the correct answer.

Miranda wants to give her 14-year-old daughter [tex]$\$[/tex]20,000[tex]$ when she turns 18. How much does she need to put in the bank now if the interest rate is 10 percent per year?

\[ \text{Future Value} = P \times (1+i)^t \]
\[ \text{Present Value} = \frac{P}{(1+i)^t} \]

A. $[/tex]\[tex]$12,418.43$[/tex]
B. [tex]$\$[/tex]13,660.27[tex]$
C. $[/tex]\[tex]$15,026.30$[/tex]



Answer :

To determine how much Miranda needs to put in the bank now, we need to calculate the present value of the future amount she wants to give her daughter. Here's a step-by-step explanation:

1. Identify the given values:
- Future value [tex]\( FV \)[/tex] which she wants to give her daughter: \[tex]$20,000 - Annual interest rate \( i \): 10% (which is 0.10 in decimal form) - Time period \( t \): Miranda's daughter is currently 14 years old, and she wants to give her the money when she turns 18, which is in \( 18 - 14 = 4 \) years. 2. Present Value Formula: \[ PV = \frac{FV}{(1 + i)^t} \] Where: - \( PV \) is the present value (the amount she needs to put in the bank now), - \( FV \) is the future value (\$[/tex]20,000),
- [tex]\( i \)[/tex] is the annual interest rate (0.10),
- [tex]\( t \)[/tex] is the number of years (4).

3. Substitute the given values into the formula:
[tex]\[ PV = \frac{20000}{(1 + 0.10)^4} \][/tex]

4. Calculate the present value:
After performing the calculations, we find:
[tex]\[ PV = 13660.27 \][/tex]

Therefore, Miranda needs to put approximately \[tex]$13,660.27 in the bank now. The correct answer is: B. \$[/tex]13,660.27