Question

What amount of money is equivalent to receiving $8000 three years from today, if the interest rate is 8% per year, compounded semiannually? Ans. $6322.52

Answer 1

The amount of money is equivalent to receiving $8000 three years from today is the present value of the $8,000 compounded semiannually at 8% per year

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

Where, “r” is the Interest Rate & “n” is the number of periods

Future Value = $8,000

Semi-annual Interest Rate (r) = 4% [8% x ½]

Number period (n) = 6 Years [3 Years x 2]

Therefore, the Present Value = Future Value / (1 + r)ⁿ

= $8,000 / (1 + 0.04)⁶

= $8,000 / 1.265319

= $6,322.52

“Hence, the amount of money is equivalent to receiving $8000 three years from today would be $6,322.52”