Asked by Nicole Moffe on Jun 15, 2024
Verified
Two-and-one-half years from now, Melanie Olson wants to have $8,500 in the bank. She can earn interest of 12% compounded monthly. Compute the amount that Melanie must deposit today. (Use Tables 16-1A&B or 16-2A&B or a calculator.)
Compounded Monthly
A method of calculating interest where the earned interest is added to the principal at the end of each month, allowing the interest in the next month to be calculated on the new total.
Present Value
Today's value of a sum of money or sequence of cash flows set to be received in the future, calculated using a given rate of interest.
- Figure out the present cost of future funds to realize particular financial ambitions.
- Deploy financial calculators or tables to tackle problems concerning the time value of money.
- Acquire knowledge about the influence of assorted compounding periods on the augmentation of investments.
Verified Answer
JK
Jennifer KrystalJun 16, 2024
Final Answer :
0.12 ¸ 12 = 0.01; 12 ´ 2 1/2 = 30;
$8,500 ´ 0.74192 = $6,306.32 deposit today
$8,500 ´ 0.74192 = $6,306.32 deposit today
Learning Objectives
- Figure out the present cost of future funds to realize particular financial ambitions.
- Deploy financial calculators or tables to tackle problems concerning the time value of money.
- Acquire knowledge about the influence of assorted compounding periods on the augmentation of investments.