Question

:

A municipality is planning for a project to start in the future. They have $600,000 available now. How much will they have to borrow 6 years from now to have $950,000 available for the project if they invest the $600,000 now at 3% interest, compounded monthly?

Answer 1

Amount available with Municipality which is Invested = $600,000

Calculating its Future Value at the end of year 6:-

Where,

r = Periodic Interest rate = 3%/12 = 0.25%

n= no of periods = 6 years*12 = 72

Future Value = $718,169.08

Accumulated Value of Invested amount in 6 years = $718,169.08

Amount Required for the Project = $950,000

The remaining amount will be borrowed which is = $950,000 - $718,169.08

= $231,830.92

So, the amount they will have to borrow 6 years from now is $231,830.92

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