General Math homework

Question

JaneJane Roznowski wants to invest some money now to buy a new tractor in the future. If she wants to have $325,000 available in 3 years, how much does she need to invest now in a CD paying 5.25% interest compounded monthly?

Answer 1

F = P(1 +i/n)^nt where

F = 325000 {Future Amount}

P = Present value of the investment

i = 0.0525 {Annual interest rate}

n = 12 {No of compounding periods/year}

t = 3 years

 

The money to invest now is

P = F/(1 +i/n)^nt

   = $325,000/(1 + 0.0525/12)¹²⁽³⁾

   = $277,735 ≅ $278,000