Question

Edward Bautista needs $24,000 in 5 years. Click here to view factor tables What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, eg. 458,581.) Investment at 12% annual interest Investment at 12% annual Interest, compounded quarterly

Answer 1

Amount needed in 5 years = $24,000

Interest rate (i) = 12%

Time period (n) = 5 years

Future value = Amount invested x Future value factor (i%,n)

24,000 = Amount invested x Future vale factor (12%,5)

24,000 = Amount invested x 1.76234

Amount invested = $13,618

Interest compounded quarterly = Quarterly interest rate (i) = 12/4

= 3% quarterly

Time period = 5 years

= 5 x 4

= 20 quarters

Future value = Amount invested x Future value factor (i%,n)

24,000 = Amount invested x Future vale factor (3%,20)

24,000 = Amount invested x 1.80611

Amount invested = $13,288

Investment at 12% annual interest	$13,618
Investment at 12% annual interest, compounded quarterly	$13,288

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