Question

You have a goal of having $160,000 five years from today. The return on the investment...

You have a goal of having $160,000 five years from today. The return on the investment is expected to be 10% and will be compounded semi-annually. The amount that needs to be invested today is closest to: (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided.)

Multiple Choice

  • $98,926.

  • $98,226.

  • $80,000.

  • 106,667
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Answer #1

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Correct option is: B. $98,226
Workings:
Cash flow Peiod Amount P.V Factor @5% Present Value
Maturity value 10 $    1,60,000                                0.61391 $            98,226
Working notes:-
Number of semiannual periods = Number of years X 2
= 5 years X 2
= 10 years
Semiannual market interest rate = 10% / 2
= 5.0%
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