Question

A company needs to have $135,000 in 5 years, and will create a fund to insure that the $135,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $135,000 at the end of 5 years?

Answer 1

The company must invest $ 100,879.85 ( approx )

Step-by-step explanation:

Let P be the invested amount,

The annul rate, r = 6% = 0.06,

Number of years, t = 5 years,

Thus, the total amount after 5 years,

`A=P(1+r)^t`

`A = P(1+0.06)^5`

`A=P(1.06)^5`

We have, A = $135,000,

`135000=P(1.06)^5`

`\implies P =(135000)/((1.06)^5)=100879.85` ( Using calculator )

Hence, company must invest $ 100,879.85 ( approx )