Question

An investment company pays 8% compounded semiannually. You want to have $18,000 in the future. (A) How much should you deposit now to have that amount in 5 years? (B) How much should you deposit now to have that amount in 10 years? (round to the nearest cent)

Answer 1

The present value is computed as shown below:

Present value = Future value / ( 1 + r )ⁿ

A. The amount is computed as shown below:

= $ 18,000 / ( 1 + 0.08 / 2 )^{5 x 2}

= $ 12,160.16 Approximately

B. The amount is computed as shown below:

= $ 18,000 / ( 1 + 0.08 / 2 )^{10 x 2}

= $ 8,214.97 Approximately

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