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Chapter 6: Question 2BE (page 302)

Tony Bautista needs $25,000 in 4 years. What amount must he invest today if his investment earns 12% compounded annually? What amount must he invest if his investment earns 12% annual interest compounded quarterly?

Short Answer

Expert verified

The amount he must invest when he earns 12% compounded annually is $15,888, and the amount he must invest when he earns 12% compounded quarterly is $15,579.

Step by step solution

01

Calculation of amount he must invest when he earns 12% compounded annually

PV=FV(PVFn,i)=25,000×0.63552=$15,888

02

Calculation of amount he must invest when he earns 12% compounded quarterly

PV=FV(PVFn,i)=25,000×0.62317=15,579

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Most popular questions from this chapter

Refer to the data in BE6-7. Assuming quarterly compounding of amounts invested at 8%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat?

Craig Brokaw, newly appointed controller of STL, is considering ways to reduce his company’s expenditures on annual pension costs. One way to do this is to switch STL’s pension fund assets from First Security to NET Life. STL is a very well-respected computer manufacturer that recently has experienced a sharp decline in its financial performance for the first time in its 25-year history. Despite financial problems, STL still is committed to providing its employees with good pension and postretirement health benefits.

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Instructions

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(c) Who are the stakeholders that could be affected by Brokaw’s decision?

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