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The amount that needs to be invested today at an interest rate of 5. 5% is determined to be $ 420,824.
Interest rate:
- A fee charged by a lender to a borrower known as an interest rate is computed as a percentage of the principal, or the loaned amount. The annual percentage rate, or APR, is typically used to express the interest rate on a loan (APR).
- Given, Future value of the car F=$ 550,000
- Rate of interest (i) =5.5% per annum Interest time periods (n)=5 years.
- PART 1:In the provided problem, the future worth of an automobile, the interest rate, and the length of the investment are all predetermined.
- Calculating the amount that must be invested now in order to obtain cash equivalent to the car's future value at the conclusion of the investment period is required.
- For this purpose, we will need to apply the PRESENT WORTH COMPUND AMOUNT FACTOR (PWCAF). This factor can be expressed as: P W C A F=[tex]\left(\frac{P}{F}, i, n\right)=\frac{1}{(1+i)^{n}}[/tex]
- PART 2:The total amount that needs to be invested today can be computed as: P=P W C A [tex]\times F=\frac{F}{(1+i)^{n}} \\[/tex]
- P=[tex]\frac{550000}{(1+5.5 \%)^{5}} \\[/tex]
- P=420824 [Rounded off to whole dollars]
- Thus, the amount that needs to be invested today is determined to be: $ 420,824
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