Jim Ryan, an owner of a Burger King restaurant, assumes that his restaurant will need a new roof in 9 years. He es...

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Answer 1

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Answer #1

Estimated cost of roof in the 9th year = $9,500

Interest rate = 6% compounded quarterly

Interest rate is compounded quarterly so it has to be divided by 4.

Adjusted interest rate (i) = 6/4 = 1.5%

Time period = 9 years

Interest rate is compounded quarterly so it has to be multiplied by 4.

Adjusted time period = 9 * 4 = 36

Calculate the amount to be invested today -

Amount to be invested today = Estimated cost of roof in the 9th year/(1+i)ⁿ

Amount to be invested today = $9,500/(1+0.015)³⁶

Amount to be invested today = $9,500/(1.015)³⁶

Amount to be invested today = $9,500/1.709139538

Amount to be invested today = $5,558.35

Thus,

Amount to be invested is $5,558.35

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Answer 2

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