Mr. Chips, Inc. wishes to accumulate $1,200,000 to be used to pay off a balloon note at the end of 5 years.
How much will Mr. Chips need to invest today to accumulate the desired amount if the investment earns an annual rate of 8% compounded quarterly? (Select the closest amount.)
A) $257,458
B) $1,783,167
C) $807,564
D) $1,086,877

Question

Quizplus · Accepted Answer

Present value of $1,200,000 at n = 5 × 4 = 20, I = 8%/4 = 2%
PV = $1,200,000 × 0.67297 = $807,564
Financial calculator:
N = (5 x 4) = 20 I/Y = (8 / 4) = 2 PV = ? PMT = 0 FV = 1,200,000
PV = $807,565.60 (rounded)

Mr Chips, Inc