Question

A Asset Valuation = Price B Wealth Accumulation C Funding – Lump sum funds lump sum D Funding – Lump sum funds ordinary level annuity E Funding – Lump sum funds delayed level annuity F Funding – Ordinary level annuity funds lump sum G Funding – Ordinary level annuity funds delayed level annuity H Choosing Among Alternatives Classify the problem as one of the above types. Choose Only One You need $4,526 in 6 months for your property tax bill. If your investments earn 4% APR (compounded monthly), how much do you have to invest today such that your investment exactly pay for your property tax bill?

Answer 1

The question can be categorised as waleth accumulation as it needs a specific amount of wealth at a specified time.

Given after 6 months, the amount to be paid is 4526.the amount is compunded monthly and the annual interest rate is 4%.

Hence the amount to be invested today is the present of the investment after 6 months.

Hence applying the present value formula

Present value=future value/(1+i/12) ^n

Where i=Annual interest rate

n=no of months

=>present value=4526/(1+4/(12*100))^6

=>present value=4436.53

Hence 4436.53 should be invested today to get a return of 4536 after 6 months.