Paula needs $400 in three years with an interest rate of 6%, compounded annually. How much does she need to invest today?

To determine the amount Paula needs to invest today in order to have $400 in three years at an interest rate of 6% compounded annually, we can use the present value formula:

[ PV = \frac{FV}{(1 + r)^n} ]

Where:

• PV is the present value (the amount to invest today),

• FV is the future value (the amount Paula wants in the future, which is $400),

• r is the annual interest rate (6% or 0.06), and

• n is the number of years (3 years).

Plugging the values into the formula:

[ PV = \frac{400}{(1 + 0.06)^3} ]

[ PV = \frac{400}{(1.06)^3} ]

[ PV = \frac{400}{1.191016} ]

[ PV \approx 335.51 ]

Rounding this amount gives approximately $336.

Thus, the correct answer is that Paula needs to invest around $336 today to achieve her goal of $400 in three years at a 6% interest rate compounded annually. This answer makes sense within the context of how compound interest works, reflecting the amount she