The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.
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A company will have to pay a $50,000 liability in four years.How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment?
A)$34,000
B)$35,500
C)$36,523
D)$36,550

Question

The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations.  
-
A company will have to pay a $50,000 liability in four years.How much must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment?
A)$34,000
B)$35,500
C)$36,523
D)$36,550

Quizplus · Accepted Answer

Using the future value of a single sum formula:

FV = PV x (1 + i)^n

Where FV is future value, PV is present value, i is the interest rate, and n is the number of compounding periods:

FV = $50,000 
i = 8%/2 = 4% per compounding period 
n = 4 years x 2 compounding periods per year = 8

PV = FV / (1 + i)^n

PV = $50,000 / (1 + 0.04)^8 = $36,550.36

Therefore, the amount that must be deposited now into a bank account earning 8% compounded semiannually to fully fund the future payment is $36,550.

The correct answer is D.

The Solution to This Problem Requires Time Value of Money