A piece of major medical equipment has a remaining life expectancy of 6 years and will cost $100,000 when replaced. The bank offers a 6-year certifcate of deposit with an interest rate of 4%, compounded annually. How much will need to be invested to provide $100,000 at maturity?

Question

Quizplus · Accepted Answer

To find out how much needs to be invested now to get $100,000 in 6 years at an annual interest rate of 4%, compounded annually, we use the formula for the future value of a single sum: FV = PV(1 + r)^n. Rearranging to solve for the present value (PV), we get PV = FV / (1 + r)^n. Plugging in the values: PV = $100,000 / (1 + 0.04)^6 = $100,000 / 1.265319 = approximately $79,000.

A Piece of Major Medical Equipment Has a Remaining Life