Calculate the amount of money that must be saved at this time.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
1) If in the next 5 years you want to have money of IDR 3,000,000 with an interest rate of 5% / year which is paid semi-annually. How much money should you save now.
2) Mrs. Indah saves her money in the bank for $ X. After 6 years her money is $ 1700, interest of 4.5% (compound) is paid every 3 months with . Calculate the amount of money that must be saved at this time.
Expert Solution
Step 1
Formula for present value annuity is;
PV = FV/(1+(r/n))nt
Where as,
PV = Present value
FV = Future value
r = Rate of interest
n = Number of times compounding in a year.
1) In the given case,
FV = IDR 3000000
r = 5%
n = 2
t = 5 years
PV = 3000000/(1+(0.05/2))5*2
PV = 3000000/(1.025)10
PV = 3000000/1.280084544
PV = IDR2343595
Therefore we have to save IDR 2343595 in order to get desired amount at the end of 5 years.
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