Steve Bautista needs $24,800 in 8 years. What amount must he invest today if his

Question

Steve Bautista needs $24,800 in 8 years. What amount must he invest today if his investment earns 8% compounded annually? What amount must he invest if his investment earns 8% annual interest compounded quarterly? Steve Bautista needs $24,800 in 8 years. What amount must he invest today if his investment earns 8% compounded annually? What amount must he invest if his investment earns 8% annual interest compounded quarterly? Steve Bautista needs $24,800 in 8 years. What amount must he invest today if his investment earns 8% compounded annually? What amount must he invest if his investment earns 8% annual interest compounded quarterly?

Explanation / Answer

1.We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.

24800=P(1.08)^8

24800=P*1.85093021

P=24800/1.85093021

=$13398.67(Approx)

2.We use the formula:
A=P(1+r/400)^4n

where
A=future value
P=present value
r=rate of interest
n=time period.

24800=P(1+8/400)^(4*8)

P=$24800/(1+8/400)^(4*8)

=$24800*0.530633303

=$13159.71(Approx).

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