Jane wants to make an investment which will pay $500 every six months over next five...
Jane wants to make an investment which will pay $500 every six months over next five years. How much should Jane invest if she requires 10% rate of return compounded semiannually?
Homework Answers
It is a case of annuity. We need to find the amount which will result in an annuity of 500 every six months for five years.
The rate of interest is 10% which is compounded semi annually so effective interest rate will be 5% per six months
Number of periods will be 5x2=10
So PVA = 500 x PVIFA (5%,10) = 500 x 7.7217 = $ 3860.85
So Jane is required to invest $ 3860.85 now to get 500 every six months.
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