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 1,000,000 after 40 years with an APR of 9% 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 1, 000, 000 a f t er 40 ye a rs w i t h an A PR o f 9% 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 : 35.17

Solution steps

Translate the problem into an equation:

A = 1 \cdot (1 + \frac{0.09}{4})^{4 \cdot 40}

1 \cdot (1 + \frac{0.09}{4})^{4 \cdot 40} = 35.16662 \dots

Round to the nearest hundredth:

35.17

Amount : 35.17