What amount must be invested today at an interest rate of 5.5% compounded monthl

Question

What amount must be invested today at an interest rate of 5.5% compounded monthly, if you want to purchase a $550,000 machine 5 years in the future?

a. What is the number of time periods (n) you should use?

b. What rate of intertest (i), per period of time, should be used in solving this problem?

c. Is the present single amount of money (P) known? (yes or no)

d. What is the desired future amount?

e. Which time value factor should be used to solve this problem?

f. What is the total amount of money that must be invested today?

Explanation / Answer

a. What is the number of time periods (n) you should use?

=12

b. What rate of intertest (i), per period of time, should be used in solving this problem?

=5.5/12=0.4583%

c. Is the present single amount of money (P) known? (yes or no)

no

d. What is the desired future amount?

550000

e. Which time value factor should be used to solve this problem?

5years

f. What is the total amount of money that must be invested today?

x=550000/(1+0.00458333)^60

=418027$

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