SOLUTION: Chapter: Amount of Annuity
You wish to purchase a house for $200,000 in 12 years. You can invest your money at 5%/a compounded semiannually. How much do you need to invest every
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You wish to purchase a house for $200,000 in 12 years. You can invest your money at 5%/a compounded semiannually. How much do you need to invest every
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Question 1162050: Chapter: Amount of Annuity
You wish to purchase a house for $200,000 in 12 years. You can invest your money at 5%/a compounded semiannually. How much do you need to invest every 6 months, starting in 6 months, so that you will have $200,000 at the time of your last deposit? Found 2 solutions by greenestamps, ikleyn:Answer by greenestamps(13203) (Show Source):
A = future value
P = periodic contribution
r = annual interest rate
n = number of compounding periods per year
t = time (years)
Note those parameter definitions mean
r/n = periodic interest rate
1+r/n = periodic growth factor
nt = number of compounding periods
In this example,
A = 200,000
P = the unknown
r = 5% = .05
n = 2
t = 12
r/n = .025
1+r/n = 1.025
nt = 24
I'll let you get the practice in doing the calculations....
It's very easy to get ridiculous answers if you get decimal points or parentheses in the wrong place; make sure your answer makes sense.
You should get an answer of a little under $6200. That makes sense because not counting the interest $6200 every 6 months for 12 years is $6200*24 = $148,800; it's reasonable that the accrued interest will bring that up to the desired $200,000.
