Question

believes that it will need new equipment in 10 years. The equipment will cost $40,000. What lump sum should be invested today at 8% compounded semiannually, to yield $40,000 in 10 years

Answer 1

$18,255.48

Step-by-step explanation:

In this question, we have to calculate the present value which is shown below:

As we know that

Future value = Present value × (1 + interest rate)^number of years

$40,000 = Present value × (1 + 0.04)^20

$40,000 = Present value × 2.191123143

So, the present value is

= $40,000 ÷ 2.191123143

= $18,255.48

The interest rate is 8% ÷ 2 = 4%

And, the time period is 10 years × 2 = 20 years