I am not sure what's the correct approach to this question. Can I get some guidance please??
As part of a retirement package for a local oil company, Jerry will receive $36,000 every 6 months for the next 20 years.
If the funds to fund this pension are invested at a rate of , how much money is there initially in the fund?
I am getting an equivalent interest rate: , and a present value for the total payments to be 991,741. Whats the correct thing to do??
Okay, I am not sure if I am totally correct but here's how i did it.
use the present value formula, PV=R[(1-(1+i)^-n)/i]
since Jerry receives $ 36,000 every 6 months
then R(regular payment)=36,000,
n(compounding periods)= 20x2=40(12/6=2) , and
i(interest rate per compounding period)= 8%(.08/2)=0.04
sub. all the values into the formula and solve for PV and it will be the value of the initial fund.
turn out to be approximately $712,539.86 which is the same as what Wilmer suggested.
Hope this helps. =]