Question

Jim Ryan, an owner of a Burger King restaurant, assumes that his restaurant will need a new roof in 8 years. He estimates the roof will cost him $11,200 at that time. What amount should Jim invest today at 12% compounded quarterly calculations. Round your answer to the nearest cent.) to pay for the roof? (Do not round intermediate Amount to be invested

Answer 1

we need to find the present value of $11,200 to be spent.

=> present value = future amount * 1/(1+r)^n

here

r =12% per annum =>12*3/12 =.3% per quarter........(since quarterly compounding is given).

n= 8 years* 4 quarters =>32.

amount to be invested:

=>$11,200 * 1/(1.03)^32

=>$4,349.37.