Use the formula for present value of money to calculate the amount you need to invest now in one lump sum in order to have 100,000after 18 years with an APR of 8%compounded quarterly. Round your answer to the nearest cent, if necessary.

Solution

U se t h e f or m u l a f or p rese n t v a l u e o f m o n ey t o c a l c u l a t e t h e am o u n t yo u n ee d t o in v es t n o w in o n e l u m p s u m in or d er t o ha v e 100, 000 a f t er 18 ye a rs w i t h an A PR o f 8% co m p o u n d e d q u a r t er l y . R o u n d yo u r an s w er t o t h e n e a res t ce n t, i f n ecess a ry .

Amount : 4.16

Solution steps

Translate the problem into an equation:

A = 1 \cdot (1 + \frac{0.08}{4})^{4 \cdot 18}

1 \cdot (1 + \frac{0.08}{4})^{4 \cdot 18} = 4.16114 \dots

Round to the nearest hundredth:

4.16

Amount : 4.16