Answered: You wish to have $40,000 dollars in 6…

You wish to have $40,000 dollars in 6 years. How much do you need to deposit today if the rate is 10% compounded monthly?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 11E

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Question

You wish to have $40,000 dollars in 6 years. How much do you need to deposit today if the rate is 10% compounded monthly?

Expert Solution

Step 1 What is present value?

The present value of the cash flow is the current worth of a cash flow at a certain rate of interest and time period.

$P r e s e n t v a l u e = c a s h f l o w \times {(1 + \frac{r}{k})}^{- k \times n} r = r a t e k = n o . o f c o m p o u n d i n g p e r i o d s n = n u m b e r o f p e r i o d s$

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