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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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