In: Finance
A real estate partnership predicts it will pay $500 at the end of each quarter to its partners for the next two years. Assume the partners earn an 8% return compounded quarterly on their investment, how much should they pay for the investment?
1656.06 |
||
4223.98 |
||
3662.74 |
||
3235.99 |
Future value = Periodic payment*(1-(1+r/n)^-n*t/r/n)
Periodic payment = 500
Rate of interest (r) = 8%
Maturity (t) = 2 years
Compounding periods (n) = 4
Future value = 500*(1-(1+0.08/4)^-2*4/0.08/4)
= 500*(1-(1.02)^-8/0.02)
= 500*(1-0.85349/0.02)
=500*(0.1465/0.02)
= 500*7.3254
= 3662.7
Answer : 3662.74