Use the present value formula to determine the amount to be invested now, or the present value needed.
-The desired accumulated amount is $9000 after 8 years invested in an account with 3% interest Compounded semiannually
A) $1907.72
B) $11,420.87
C) $7104.68
D) $7092.28

Question

Quizplus · Accepted Answer

The present value $PV$ formula for compound interest is $PV = \frac{FV}{(1 + r/n)^{nt}}$, where $FV$ is the future value, $r$ is the annual interest rate, $n$ is the number of times the interest is compounded per year, and $t$ is the time in years. Here, $FV = \$9000$, $r = 0.03$, $n = 2$, and $t = 8$. Plugging these values into the formula gives $PV = \frac{9000}{(1 + 0.03/2)^{2*8}}$, which calculates to approximately \$7092.28.

Use the Present Value Formula to Determine the Amount to Be