Barbara knows that she will need to buy a new car in 3 years. The car will cost $15,000 by then. How much should she invest now at 6%, compounded quarterly, so that she will have enough to buy a new car? Show the use of the appropriate formula by indicating the information in the formula.
Barbara knows that she will need to buy a new car in 3 years. The car will cost $15,000 by then. How much should she invest now at 6%, compounded quarterly, so that she will have enough to buy a new car? Show the use of the appropriate formula by indicating the information in the formula.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Barbara knows that she will need to buy a new car in 3
years. The car will cost $15,000 by then. How much should
she invest now at 6%, compounded quarterly, so that she
will have enough to buy a new car?
Show the use of the appropriate formula by indicating the
information in the formula.
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Transcribed Image Text:llustration 10-1 Compound Interest Formulas
Formula
If periodic payment is made at
the beginning of each period
When to use
Need to know FV; know PV
FV = PV(1 + i)
IA
Not applicable.
PV
Need to know FV; know PMT
Multiply the result by (1 + i).
(1 + i) -
FV = PMT
IB
PMT PMT PMT PMT
РМТ РМТ РМТ РМТ
Need to know PV; know FV
PV =FV
2A
Not applicable.
(1 + i)
FV
Multiply the result by (1 + i).
PMT PMT PMT PMT
Need to know PV; know PMT
PMT PMT PMT PMT
2B
PV = PMT
(1 + i)"
?
Need to know interest rate; know PV
and FV
FV
- 1
i = ?
Not applicable.
i =
FV
PV
Divide the result by (1 + i).
Need to know PMT; know FV
FV(i)
4A
PMT =
FV
(1 + i)" - 1
FV
Divide the result by (1 + i).
Need to know PMT; know PV
PV(i)
4B
PMT
PV
1-
(1 + i)"
PV
Need to know n; know at least two of these
variables: PV, FV, PMT
PV + (1 + i) (PMT)
- In
(PMI)
(1 + i) (PMT) - FV
PV +
- In
PMT -FV
5*
n= ?
n =
In(1 + i)
n =
In(1 + i)
esent value; FV = future value: PMT = periodic payment; i = interest rate per period, expressed in decimal form; n = total number of periods. The
ymbol In stands for natural logarithm.
Dona S is a comprehensive formula that covers quite a few situations. For this formula, use proper sign convention for PV, FV, and PMT. Think of the
PV
Expert Solution
Step 1
The present value is the present worth of the payment that will be paid or received in the future.
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