Question

Use the present value formula to determine the amount to be invested now, or the present value needed. The desired accumulated amount is $6000 after 2 years invested in an account with 4% interest compounded semiannually

Answer 1

Present value is $5543.07.

Given:

The future value is, FV = $6000.

The number of years is, t = 2 years.

Rate of interest is, r = 4%=0.04.

Componding term is semiannuallym n = 2.

The objective is to find the present value needed.

The formula to find the present value is,

`PV=(CV)/((1+(r)/(n))^(t+n))`

Now, substitute the given values in the above equation.

`\begin{gathered} PV=(6000)/((1+(.04)/(2))^(2+2)) \\ =(6000)/((1+0.02)^4) \\ =(6000)/((1.02)^4) \\ =5543.07 \end{gathered}`

Hence, the present value to be determined is, $5543.07.