Question

Southwest Dry Cleaners believes that it will need equipment in 10 yeas. The equipment will cost 26,000. What lump sum should be invested today at 6% compounded semiannually to yield $26,000?

Answer 1

$A=P(1+\frac {r} {n}) ^{nt}$

$P=\frac {A} {(1+\frac {r} {n}) ^{nt} }$

$P=\frac {26000}{(1+\frac {0.06} {2}) ^{(10×2)}}$

$P=\frac {26000}{(1+0.03)^{20}}$

$P=\$14,395.57$