Question

6.

Valdez Construction signed a note with a payment of $5,200 per quarter for 5 years.
Find the amount they must set aside today to satisfy this capital requirement in an account earning 8% compounded quarterly.


$30,506.32

$126,346.32

$51,054.38

$85,027.44

Answer 1

If P = Periodic payments done quarterly (that is, four time in a year) = $5,200, n = number of years (5), R = Annual interest rate = 8% = 0.08, and A = Amount to be set aside today, then

A = P [1-(1+R/4)^4n]/(R/4) = 5200 [1-(1+0.08/4)^4*5]/(0.08/4) = $85,027.45

Therefore, Valdez construction should set aside $85,027.44 now to satisfy the capital requirement.