Question

Help me with Economics homeworj

Suppose that you desire to get a lump-sum payment of $100,000 two years from now. Instructions: Round your answer to the nearest dollar. How many current dollars will you have to invest today at 6 percent interest to accomplish your goal?

Answer 1

Amount today invested at 6% interest = x

Amount desired to get in two years = $100,000

So , using compound interest formula :-

Principal * (1+i)^t = Amount

Here , Principal = x , this is to be invested today (to be calculated)

i = 6% = 0.06

t = time period = 2 years

Amount = $100,000

So ,

x * (1+0.06)^2 = $100,000

x = $100,000 / (1.06)^2

x = $100,000 / 1.1236

x = $88,999.644

So , the amount to be invested today at 6% interest to yield $100,000 in two years time is $88,999.644