Question

• You plan to take a vacation in 6 months that will cost $5,350 How much do you have to invest today to just fund your vacation if your investments earn 3.13% APR (compounded monthly)?
• You will have a property tax payment due in 8 months that will cost $9,975. How much do you have to invest today to have just enough to pay your property tax bill if your investments earn 3.58% APR (compounded monthly)?

Answer 1

• You plan to take a vacation in 6 months that will cost $5,350 How much do you have to invest today to just fund your vacation if your investments earn 3.13% APR (compounded monthly)?

Effective monthly rate, r = 3.13%/12 = 0.002608333333

n = 6

FV = 5,350

PV = FV/(1 + r)^n

PV = 5,350/(1 + 0.002608333333)^6

PV = $5,267.0315767877

We have to invest $5,267.0315767877 today to just fund our vacation.

• You will have a property tax payment due in 8 months that will cost $9,975. How much do you have to invest today to have just enough to pay your property tax bill if your investments earn 3.58% APR (compounded monthly)?

n = 8

Effective monthly rate, r = 3.58%/12 = 0.002983333333

FV = 9,975

PV = FV/(1 + r)^n

PV = 9,975/(1 + 0.002983333333)^8

PV = $9,740.0945653397

We have to invest $9,740.0945653397 today to just fund our tax payment.