Question

Keith opened an investment account where he is paid 8% annual interest, compounded semi-annually. He wants to have $7,000 in the investment account in 3 years. What is the number of periods for this investment?

Answer 1

6 periods

Explanation:

The investment is compounded semi-annually which means it is compounded twice in a year. Period of investment is 3 years. So, number of periods compounded is 3 multiplied by 2 that is 6 periods.

Rate would be 8% divided by 2 that is 4%.

Initial investment can be calculated usinf spreadsheet function as =PV(rate,nper, pmt, FV)

Where,

rate is 0.04

nper is 6

pmt is 0

FV is 7,000

So, initial investment is $5,532.20.

It is negative as it is a cash outflow.