Question

Bill wants to give Maria a $630,000 gift in 3 years. If money is worth 6% compounded semiannually, what is Maria's gift worth today?

Answer 1

Answer:

$527,615.08

Explanation:

The formula that describes the present value of an investment compounded semiannually is:

$PV = \frac{FV}{(1+\frac{r}{2}^{(2*t)})}$

For a future value of $630,000 obtained at a 6% annual rate for 3 years, the present value is:

$PV = \frac{630,000}{(1+\frac{6}{2}^{(2*3)})}\\PV=\ 527,615.08$

Maria's gift is worth $527,615.08 today.