Question

The state highway department has condemned Ms. BrownMs. Brown's farm to build a new highway by-pass. They have already paid $165,000165,000 for the property and have agreed to let Ms. BrownMs. Brown continue to live in the house until construction on the by-pass actually begins. Due to state budget problems, all highway construction jobs in the region have been suspended indefinitely. Today Ms. BrownMs. Brown deposits the entire amount paid for the property in an account at an interest rate of 88%, compounded semi-annually (22 times per year). She plans to use the entire balance in the account to invest in a new home at the time that construction on the by-pass actually begins. How much will Ms. BrownMs. Brown have to invest in a new home if construction begins 88 years from today

Answer 1

Ms. Brown

Investment in a new home

= $565,280.54

Explanation:

a) Data and Calculations:

Present value of investible funds = $165,000

Interest rate = 8% compounded semi-annually (2 times per year)

Period of investment = 8 years

Therefore, future investment in a new home will cost (Using an online finance calculator):

Results:

FV (Future Value) $565,280.54

PV (Present Value) $165,000.00

N (Number of Periods) 16.000

I/Y (Interest Rate) 8.000%

PMT (Periodic Payment) $0.00

Starting Investment $165,000.00

Total Principal $165,000.00

Total Interest $400,280.54

b) Ms. Brown will earn a total of $565,280.54 in 8 years by investing the $165,000 paid to her at 8% interest that is compounded semi-annually.