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Chapter 5: Q. 16 (page 324)

Find the principal needed now to get each amount; that is, find the present value to get $75 after 3 years at 8% compounded quarterly

Short Answer

Expert verified

The answer is $59.14

Step by step solution

01

Step 1. Given information 

The amount, A=$75

The rate of interest, r=8%=8100=0.08

The time period, t=3years

The investment compounded quarterly per year,n=4

02

Step 2. Use Present value formulas

The present value P of A dollars received after t years, assuming a per annum interest rate r compounded n times per year, isP=A1+rn-nt

03

Step 3. Calculation

Substitute the values in the Present value formula,

P=$751+0.084-4脳3P=$751.02-12P=$7511.0212P=$750.980312P=$750.78849P=$59.14

The Present value,P=$59.14

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