Question

What sum of money now is equivalent of $8,250 two years later, if the interest is 4% per 6-month period (8% compounded semi-annually)?

Answer 1

Answer:

$7052.13

Explanation:

We can calculate the present value of money equivalent of $8,250 two years later by applying present value formula

DATA

Future value = $8,250

Interest rate = 4%

Number of periods = n = 2 years x 2 times a year = 4 times

Present value =?

Solution

PV = $\frac{1}{1+(interest rate)^n} futurevalue$

PV = ×\$\frac{1}{1+(0.04)^4} 8250$

PV = $7052.13