Homework Answers
Answer
The correct answer is (e) $666
It is given that you have to buy machine which is worth 3000 after five years.
So, You need 3000 at the beginning of 5th year.
Future Value(FV) of a Periodic payment is given by :
FV = (P/r)((1 + r)n - 1)
where P = Periodic payment that we have to calculate, r = interest rate = 8% = 0.08, n = number of time period.
As it is given that we want 3000 at the beginning of the 5th year and first payment is made at the end of first year. Thus There will be 4 periodic payments and hence n = number of periods = 4.
As discussed above that we need Future Value(FV) to be equal to 3000.
Hence with this given information and above formula we get :
3000 = (P/0.08)((1 + 0.08)4 - 1)
=> P = 3000*8/((1 + 0.08)4 - 1)
=> P = 665.7 = 666(approx).
Hence the correct answer is (e) $666.
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