Question

Francis wants to have $22,000 in 10 years. calculate how much he should invest now at 8% interest, compounded quarterly in order to reach this goal.

Answer 1

Formula: PV = FV/(1+i)^n

Symbol: PV = Present Value
              FV = Future Value
                  i = interest rate
                 n = time
                 ^ = exponent  

Given: FV = $22,000
               i = 5/100 x 1/4 (since it is compounded quarterly) 
               i = 0.02
               n = 10 yrs x 4 compounded quarterly
               n = 40  

Solution: PV = 22,000/(1+0.02)^40
               PV = 9,963.5891 or $9,963.58  

Francis should invest $9,963.58 at 8% interest, compounded quarterly in order to have $22,000 in 10 years time.