Question

What initial investment subject to annual compounding at 12 % is needed to produce $1, 000 after two years?

Answer 1

$797.19

Explanation:

We use the formula for Future Value of Money

`FV=PV(1+i)^n\\\\`

FV=1,000

i=12%

n=2

`FV=PV(1+i)^n\\\\1,000=PV(1+0.12)^2\\\\1,000=PV(1.12)^2\\\\(1,000)/((1.12)^2) =PV\\\\797.19=PV`

So the initial investment has to be 797.19