Question

Question 7 (2 points) Every six months, Jamison deposits $450 into an interest-bearing account to save for her children's tuition. The interest rate on the account is 6.8% compounding semiannually. What is the present value of the investment if Jamison's children leave for college in 8 years? (2 points) a $4,600.84 b $4,307.90 c $5,483.45 d $5,669.89

Answer 1

PV= $5,483.45

Explanation:

Giving the following information:

Semiannual deposit= $450

i= 0.068/2= 0.034

Number of periods= 8*2= 16

First, we need to calculate the future value using the following formula:

FV= {A*[(1+i)^n-1]}/i

A= semiannual deposit

FV= {450*[(1.034^16) - 1]} / 0.034

FV= $9,362.30

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 9,362.30 / 1.034^16

PV= $5,483.45