Question

Adams Bautista needs $26,700 in 8 years. Click here to view factor tables

Required:
a. What amount must he invest today if his investment earns 12% compounded annually?
b. What amount must he invest today if his investment earns 12% compounded annually?

Answer 1

a. $10,783.68

b. $10,510.36 semi annual compounding

Step-by-step explanation:

a. This question requires the present value of $26,700 given 8 years and compounded annually at 12%.

Present Value =
`(Future Value)/( ( 1 + interest)^(number of periods) )`

Present Value =
`(26,700)/( 1.12^(8) )`

Present Value = $10,783.68

He would need to invest $10,783.68 today.

b. This is a duplicate of question 1 but I will solve it assuming semi-annual compounding just in case.

12% per annum would become = 12/2 = 6% per semi annum

Number of periods would become = 8 * 2 = 16 periods

Present Value =
`(Future Value)/( ( 1 + interest)^(number of periods) )`

Present Value =
`(26,700)/( 1.06^(16) )`

Present Value = $10,510.36

He would need to invest $10,510.36 today.