Question

What is the present value of an investment that will be worth $3000 at the end of five years? Assume an APR of 6% compounded monthly. (Round your answers to the nearest cent.)
$

Explain what your answer means.

This means that to have an investment worth $  in the future, you must invest $  now, assuming the APR is 6% and constant over the next five years.

Answer 1

where r is the rate of return for a compounding period i.e. month i.e. 6%/12 = 0.5% OR 0.005

n is the no of compounding period i.e. 5 years * 12 month = 60 periods

= 3000 / 1.34885015255

= $ 2224.12

This means that to have an investment worth $ 3,000 in the future, you must invest $ 2,224.12 now, assuming the APR is 6% and constant over the next five years.

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