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Julia wants to buy a parcel of land in Montana so that she can raise bison. If the minimum down payment on...

Julia wants to buy a parcel of land in Montana so that she can raise bison. If the minimum down payment on the land is $25,000, find the amount she must invest now at 8%, compounded quarterly, to have her down payment in 4 years. Use the table of values below.

Answer

To find the present value, use the table to find the present value factor for 8% compounded quarterly over 4 years. The rate per period is 2% (8% annually divided by 4 quarters), and the number of periods is 16 (4 years times 4 quarters). From the table, the present value factor is 0.7350.

Calculate the present value:

Present Value = Future Value × Present Value Factor

Present Value = $25,000 × 0.7350 = $18,375

Therefore, Julia must invest $18,375 now.

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