Chapter 11.II, Problem 18RE

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

Chapter
Section

### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Solve the following word problems by using table 11-2.Pinnacle Homes, a real estate development company, is planning to build five homes, each costing $125,000, in 2 1 2 years. The Galaxy Bank pays 6% interest compounded semiannually. How much should the company invest now to have sufficient funds to build the homes in the future? To determine To calculate: The Company’s initial investment that has total compound amount$625,000 and semiannually interest of 6% over 212 years.

Explanation

Given information:

The semiannually interest rate is 6% for 212 years and the compound amount is $625,000($125,000×5).

Formula used:

Compounding period can be calculated by formula given below:

Compounding periods=Term of investments(years)×m

Here, m is the period per year.

The interest rate per period can be calculated by dividing the annual, or nominal, rate by the number of periods per year,

Interest rate per period=Nominal ratePeriod per year

The present value (principal) can be calculated by the formula given below:

Principal=Table factor×Compound amount

In Present value table, the table factor is the intersection of the rate-per-period column and the number-of-periods row is the present value of $1 at compound interest. Calculation: Consider the compound amount$625,000(\$125,000×5) and semiannually 6% interest over 212 years and solve as shown below:

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