Pollution control equipment for a pulverized coal cyclone furnace is expected to cost $190,000 two years from now and another $120,000 four years from now. If Monongahela Power wants to set aside enough money now to cover these costs, how much must be invested at an interest rate of 8% per year compounded quarterly?

Question

Cristian Tyler

Business

22 December, 07:10

Pollution control equipment for a pulverized coal cyclone furnace is expected to cost $190,000 two years from now and another $120,000 four years from now. If Monongahela Power wants to set aside enough money now to cover these costs, how much must be invested at an interest rate of 8% per year compounded quarterly?

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Judith · Answer 1

Answer: the amount to be invested is $249,583.96

Explanation: To determine the amount to be set aside to get $190,000 2 years from now and $120,000 6 years from now.

Using the Effective rate (i) per year: r = 8% per year m = 4 per year

i = r / m = 8% / 4 = 2% per quarter

Calculate the present value: P = - 190,000 (1 / (1 + 0.02) 8) - 120,000 (1 / (1 + 0.02) 16) = -248,583.96

Therefore, the amount to be invested is $249,583.96 at an interest rate of 8% per year compounded quarterly.