Al Miler, the owner of Al's Garage, estimates that he will need $29,000 for new equipment in 15 years. Al decides that he will put aside the money now so that in 15 years the $29,000 will be available. His bank offers him 10% interest compounded semiannually. (Use the tables in the handbook.)Al must invest today:

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for the future value of an investment is:FV = PV * (1 + r/n)^(nt)where:FV is the future valuePV is the present valuer is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, we have:FV = $29,000r = 10% = 0.10n = 2 (since the interest is compounded semiannually)t = 15Substituting these values into the formula, we get:$29,000 = PV * (1 + 0.10/2)^(2*15)$29,000 = PV * (1.05)^30$29,000 = PV * 14.0159Dividing both sides by 14.0159, we get:PV = $2,070.16Therefore, Al must invest $2,070.16 today in order to have $29,000 in 15 years.

Al Miler, the Owner of Al's Garage, Estimates That He