SOLUTION: An investor wanted to have 1 million in his account earning 8% compounded semiannually in 5 years. How much should he invest now?

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Question 1175892: An investor wanted to have 1 million in his account earning 8% compounded semiannually in 5 years. How much should he invest now?
Answer by math_helper(2461) About Me  (Show Source):
You can put this solution on YOUR website!


+F+=+P%281%2Br%2Fn%29%5E%28nt%29++




+1000000+=+P%281%2B0.08%2F2%29%5E%282%2A5%29+

+1000000+=+P%281.04%29%5E10+

+P+ = +1000000%2F%281.04%29%5E10+ = +675564.17+




Ans: The investor needs to invest $675564.17 today to have $1 million in 5 years.




Check:  I'll just compute the value of the investment at each 6mo compounding interval:



time(yrs)      value ($)

---------      ---------

0              675564.17

0.5            702586.74

1.0            730690.21

1.5            759917.81

2.0            790314.53

2.5            821927.11

3.0            854804.19

3.5            888996.36

4.0            924556.21

4.5            961537.46

5.0           1000000.00