To solve this problem, we need to use the formula for future value of a lump sum:
FV = PV x (1 + r/n)^(n*t)
Where:
FV = future value
PV = present value
r = interest rate
n = number of compounding periods per year
t = number of years
First, we need to find out how much the $10,000 investment will be worth in 8 years at a 4% quarterly interest rate. We can plug in the values:
FV = 10,000 x (1 + 0.04/4)^(4*8) = 10,000 x 1.3659 = $13,659
So the partner who plans to invest in 8 years needs to contribute $13,659 to match her partner's investment now.
Two partners agree to invest equal amounts in their business. One will contribute $10,000 immediately. The other plans to contribute an equivalent amount in 8 years. How much should she contribute at that time to match her partner's investment now, assuming an interest rate of 4% compounded quarterly?
1 answer