A real estate development company is planning to bulid five homes, each costing $125,000, in 2.5years. the bank pays 6% interest compound semiannually. how much should the company invest now to sufficemt funds to build homes in the future?

Answer 1

Future value, F = 5*125000=625000
Interest, i = 6% annually = 0.06
compounding frequency, f = 2
Time, t = 2.5 years
Let
P = present value
then use the compound interest formula
F=P(1+i/f)^ft

Solve for P
P=F/(1+i/f)^ft
=625000/(1+0.06/2)^2*2.5
=539130.49
=