Question
Jonathan Corp. has discovered an investment opportunity that earns 8% interest compounded quarterly. What amount should be invested today in order to have $2,000,000 in
Jonathan Corp. has discovered an investment opportunity that earns 8% interest compounded quarterly. What amount should be invested today in order to have $2,000,000 in five years?
Important variables
PV - Present value: is the value today of a cash flow or a series of cash flows to be received or paid in the future.
FV - Future value: the value at some specified point in the future of a cash flow or a series of cash flows to be paid or received between the current date and the specified point in the future.
I - Annual Interest Rate: the annual interest rate
Y - Number of Compounding Periods per Year: the number of times per year that interest is calculated.
n Years: total number of years.
I/Y Interest Rate per Compounding Period
N = n x Y Number of Compounding Periods
Formula we used in class:
FV = PV x (1 + I / Y) N
Finance 3101 formulas - Selected (Brooks' Financial Management):
CHAPTER 3
- FVn = PV0(1 + r)n
- PV0 = FVn / (1 + r)n
- n = ln (FV/PV) / ln (1 + r) [Rule of 72: n (yrs.) 72 / r (annual %)]
- r = (FVn/PV0)(1/n) 1 [Rule of 72: r (annual %) 72 / n (yrs.)]
CHAPTER 4
- FVAn = PMT [((1 + r)n - 1) / r]
- PVAt = PMT(t+1) [(1 - 1/(1 + r)n) / r]
- PVPt = PMT(t+1) / r
Group of answer choices
$1,351,128
$2,971,900
$1,361,160
$1,345,940
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