Problema Solution
compute the present value (principal) for an investment with a compound amount of $20,000, a 30-month term of investment, and a 14% nominal interest rate compounded semiannually. (Points : 2.5)
Answer provided by our tutors
The formula for calculating annual compound interest is
A = P (1 + (r/n))^ (n*t)
where
A = 20,000 is the value after t = 2.5 periods
P = principal amount
r = 14% is annual nominal interest rate
n = 2 is number of times the interest is compounded per year
t = 30/12 = 2.5 years is number of years the money is invested for
We need to find P
20000 = P* (1 + (0.14/2))^(2*2.5)
20000 = P * 1.7^5
P = 20000/14.19857
P = $1408.6 approximately.