Finance help (1 Viewer)

[Lozza_R_87]

Hey, i really need help with how to do a question we got in our trial

"Sei Sie wins a jackpot in the lottery. she wishes to invest an amount of this money in an investment account so she can withdraw $4000 every 3 months for the next ten years. Interest on the account is compouned quarterly at a rate of 12% p.a. At the end of 10 years nothing will be left in the account. How much does Sei Sei need to invest now?"

A: $22 600.89
B: $32 443.58
C: $79 171.09
D: $92 459.09

I got it right, but i have no idea how i did it! if anyone can help, it would be great! Thanks and good luck

 

[= Jennifer =]

is the answer D?

 

[PC]

The answer is D.

When you see something like what single amount do you invest now it just means the present value.

Do you have a graphics calculator? If you do, it's easy.
Make n = 4 x 10 (4 times a year for 10 years)
Make I = 12%
Make PV = 0 (this is what you want to find)
Make PMT = -4000 (this needs to be negative, because it's coming out of the account and not going in)
Make FV = 0 (because there will be nothing left in the account after 10 years)
Make P/Y = 4 (4 times a year)
Make C/Y = 4 (4 times a year)
Then just press [PV] and there's your answer!

PV = $92459.09

Otherwise you can just use the present value formula.
Use M = 4000, r = 0.03 (3% per quarter) and n = 40 (40 quarters)
N = $92459.09 after all the number crunching.

Hope this helps.

All the best for tomorrow!