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Pineapple Enterprises has an outstanding liability that will require them to pay Apple Co. $50,000 in 5 years. How much cash would Pineapple need to deposit today into an account, earning 8% interest, compounded quarterly, in order to have the amount needed in 5 years?

Respuesta :

Answer:

$33,648.57

Explanation:

The computation of Required deposit today is given below:-

For computing the required deposit today first we need to find out the present value

Present value of 1 = (1 + i)^-n

= (1 + 0.02)^-20

= 0.67297133

Where, i = 8%/4

= 0.02

n = 5 × 4

= 20

Required deposit today = Future value × Present value of 1

= $50,000 × 0.672971      

= $33,648.57

Tundexi

The amount of cash that Pineapple would need to deposit today into the account earning 8% interest is $33,648.57.

  • Firstly we need to compute the present value of 1

Given Information

i = 8%/4 = 0.02

n = 5 × 4 = 20

Present value of 1 = (1 + i)^-n

Present value of 1 = (1 + 0.02)^-20

Present value of 1 = 0.67297133

  • The formula for Required deposit today is {Future value × Present value of 1}

Required deposit today = $50,000 * 0.672971

Required deposit today = $33,648.57

Therefore, the amount of cash that Pineapple would need to deposit today into the account earning 8% interest is $33,648.57.

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