Question

If you wish to accumulate $125,000 in 7 years, how much must you deposit today in an account that pays a quoted annual interest rate of 11% with quarterly compounding of interest

Answer 1

You need to deposit $58,481.53 today.

Step-by-step explanation:

a) Data and Calculations:

Future value expected = $125,000

Period of investment = 7 years

Interest rate = 11% compounded quarterly

The amount of deposit needed today to earn $125,000 in 7 years at annual interest rate of 11% is calculated as follows:

N (# of periods) 28

I/Y (Interest per year) 11

PMT (Periodic Payment) 0

FV (Future Value) 125000

Results

PV = $58,481.53

Total Interest $66,518.47