Question

Determine the initial investment, PV, for a future value of 6500 dollars if the nominal rate of interest is 5.9 percent compounded quarterly for 12 years? FV = PV(1 + r/n) ^ntPv = ________ (Be sure to give 2 decimal places of accuracy.)

Answer 1

Answer: PV = 3218.69

Step-by-step explanation:

The formula for calculating compound interest is expressed as

FV = PV(1 + r/n) ^nt

Where

FV is the future value

PV is the initial value

r is the interest rate

n is the number of compounding periods in a year

t is the number of years

From the information given,

FV = 6500

r = 5.9% = 5.9/100 = 0.059

n = 4 because it was compounded quarterly

t = 12

By substituting these values into the formula,

6500 = PV(1 + 0.059/4)^4 * 12

6500 = PV(1.01475)^48

PV = 6500/(1.01475)^48

PV = 3218.69