Question

What amount must be invested today at an interest rate of 5.5% compounded monthly, if you want to purchase a $550,000 machine 5 years in future?

Answer 1

If we want to purchase a $550000 machine after 5 years when interest rate is 5.5% then we have to invest $423077.

Given that the cost of the machine is $550000, rate of interest is 5.5%. and years is 5 years.

We are  required to find the amount to be invested now so that we will be able to purchase the machine after 5 years.

let the amount that needs to be invested now be P.

Future value of P is $550000.

Effective rate of interest=5.5%/12=0.0045

According to question:

P$(1+0.0045)^{60}$=550000

P=550000/1.3

P=423076.92

P=$423077.

Hence if we want to purchase a $550000 machine after 5 years when interest rate is 5.5% then we have to invest $423077.

Learn more about future value at https://brainly.com/question/24703884

#SPJ4