Question

A company needs to have $135,000 in 5 years, and will create a fund to insure that the $135,000 will be available. If it can earn a 6% return compounded annually, how much must the company invest in the fund today to equal the $135,000 at the end of 5 years?

Answer 1

Answer:

The company must invest $ 100,879.85 ( approx )

Explanation:

Let P be the invested amount,

The annul rate, r = 6% = 0.06,

Number of years, t = 5 years,

Thus, the total amount after 5 years,

$A=P(1+r)^t$

$A = P(1+0.06)^5$

$A=P(1.06)^5$

We have, A = $135,000,

$135000=P(1.06)^5$

$\implies P =\frac{135000}{(1.06)^5}=100879.85$   ( Using calculator )

Hence, company must invest $ 100,879.85 ( approx )