A father would like to give his daughter a cash gift of N$ 20 000.00 on her 21st birthday in exactly four years' time.

A father would like to give his daughter a cash gift of N$ 20 000.00 on her 21st birthday in exactly four years' time. How much must be deposit today in a fixed deposit account that pays 9% p.a compounded monthly to reach this target?

Expert Solution

Father has to invest N$14168.50 today to get $20000 in 4th year .

As given Father wants to give after 4year N$ 20000 , hence this is future value

Formula for Present value compound interest is

PV = FV / (1+r)ⁿ

where PV = Present value

FV = Future Value =20000

r= Rate of Interest=9%=0.09/12 =0.075

n = Number of year or times compounded =4 year×12=48

PV =20000/(1+0.0075)⁴⁸

=20000/1.431405333137

=N$13972.283

ekkarill92 answered 2 years ago

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