7. You plan to go away on a cruise for your five-year anniversary.

You estimate that the trip will cost about

$10,000. (LO 4-3)

a. What formula would you use to determine how much money to place in savings today to have enough for the cruise in five years?

(1) FV/(1 − i)n

(2) FV/(1 + n)i

(3) FV/(1 − n)i

(4) FV/(1 + i)n

b. If you decided to compute the value using the reference table method, what factor would you use if you were earning a 4% interest rate annually?

(1) 0.8219

(2) 5.4163

(3) 1.2167

(4) 4.4521

c. If using a calculator, which values would you use to solve for PV?
(1) N = 5; I/YR = 4; FV = 10,000; PMT = 0 (2) N = 5; I/YR = 4; FV = −10,000; PMT = 0 (3) N = 5; I/YR = 4; FV = 0; PMT = 10,000 (4) N = 5; I/YR = 4; FV = 0; PMT = −10,000

d. How much of the gift money should you deposit today to have enough in savings to pay for the anniversary cruise?
(1) $8,219 (2) $5,416 (3) $12,167 (4) $4,451