Question

Inez wants to have 14750 in 3 years. Use the present value formula to calculate how much inez should invest now at 8% intrest, compounded quarterly in order for her to reach her goal

Answer 1

The amount is computed as shown below:

Present value is computed as follows:

= Future value / (1 +r)ⁿ

r is computed as follows:

= 8% / 4 (Since the interest is compounded quarterly, hence divided by 4)

= 2% or 0.02

n is computed as follows:

= 3 x 4 (Since the interest is compounded quarterly, hence multiplied by 4)

= 12

So, the present value will be as follows:

= 14,750 / 1.02¹²

= 11,630.27 Approximately

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