Question

Southwest Dry Cleaners believes that it will need new equipment in 7 years. The equipment will cost $26,000. What lump sum should be invested today at 6%, compounded semiannually, to yield $26,000?

Answer 1

A = P(1+r/n)^(rt)

Plug in A = final amount = 26,000, r = interest rate, t = time, n = number of times compounded per year, then solve for P (the initial amount that must be invested)