Question

An airport in Japan is planning to purchase a parcel of land for building additional executive hangars in five years. The price of land currently is $2,000,000. The average inflation rate is 5 percent in the next five years. How much should the airport invest in a uniform amount per year for five years in an account that pays 8 percent interest annually to be able to purchase the land in five years?

Answer 1

Answer:

The airport should invest a uniform amount of $A=$$357,958.55

Explanation:

Hi

First of all, we need to know how much will cost the land in five years so we have, $F=2000000*(1+0.05)=2100000$, that means that the future value of the land will be $2'100,000.

Now we can use $A=\frac{F}{\frac{(1+i)^{n} -1}{i} }$ with $F=2100000, n=5$ and $i=8$%, so we have $A=\frac{2100000}{\frac{(1+008)^{5} -1}{0.08} }=357958.55$