Question

How much would you have to invest today at 5% compounded MONTHLY to have $19,000 available for the purchase of a car four years from now?

Answer 1

Future value = FV = 19000

Present value = PV i.e., we invest PV amount today

Time period = 4 years

No. of months = n = 4*12 = 48

Annual interest rate = 5%, compounded monthly

Monthly interest rate = rm = 5%/12

Future value is calculated using the formula:

FV = PV*(1+rm)n

PV = FV/(1+rm)n

Present Value = 19000/(1+(5%/12))48 = 15562.34932158 ~ 15562.35 (Rounded to two decimals)

We will have to invest $15562.35 today to have $19000 for the purchase of car after 4 years

Answer -> $15562.35