Question

- You plan to visit France for 5 months, (starting next month). You will spend $6,248 in each of those months. How much do you need to invest today to just fund your visit if your investments earn 4.98% APR (compounded monthly)?

- You will have a property tax payment due in 11 months that will cost $8,277. How much do you have to invest today to have just enough to pay your property tax bill if your investments earn 5.36% APR (compounded monthly)?

Answer 1

Q-1)

You will visit france starting from next month and spend $6248 each month

Calculating the Present value of these annuity payments to know the amount to be Invested today:-

Where, C= Periodic Payments = $6248

r = Periodic Interest rate = 4.98%/12 = 0.415%

n= no of periods = 5 months

Present Value = $30,854.80

So, the amount you need to Invest today is $30,854.80

Q-2)

Property tax to be paid in 11 months = $8277

Calculating the Present Value of one time payment:-

Present Value = Future Value/(1+r)^n

Where, Future Value = $8277

r = Periodic Interest rate = 5.36%/12 = 0.446666%

n= no of periods = 11

Present Value = $8277/(1+0.00446666)^11

Present Value = $8277/1.05024540392

Present Value = $7881.02

So, the amount you have to Invest today is $7881.02