Problema Solution
You are the owner of a Jani-King cleaning service franchise. Your accountant has determined that your business will need $27,500 in new equipment in 3 years. If your bank is paying 6% interest compounded monthly, how much must you invest today to meet this financial goal?
Answer provided by our tutors
Use this formula P(t) = P(1+r/n)nt which is
n is the number of periods per year.
r is the annual interest rate.
t is the number of years.
Then, we are given that P(3) = 27500, n = 12 (monthly compounding means 12 periods per year)
r is 6% = .06
t = 3
Then
27500 = P(1 + .06/12)12*3 = P(1 + .005)36 = P(1.005)36
==> P = 27500/(1.005)36 = $22980