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18 February, 12:44

Jane Roznowski wants to invest some money now to buy a new tractor in the future. If she wants to have $250,000 available in 6 years, how much does she need to invest now in a CD paying 4.65 % interest compounded monthly ?

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  1. 18 February, 14:17
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    Present Value = $189,236.98

    Explanation:

    Giving the following information:

    Future value = $250,000

    Number of years = 6

    Interest rate = 4.65 % compounded monthly

    First, we need to calculate the real interest rate:

    Interest rate = 0.0465/12 = 0.003875

    Now, using the following formula, we can calculate the initial inventment:

    PV = FV / (1+i) ^n

    n = 6*12 = 72

    PV = 250,000 / (1.003875^72)

    PV = $189,236.98
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