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Answer :
Final answer:
Pete should ask a price that is greater than $70,000 in order to make a better investment. Pete should ask a price greater than $97,058.94 or $90,822.53 to make a better investment than selling his business and investing the money at 6% compounded quarterly.
Explanation:
Pete should ask a price that is greater than $70,000 in order to make a better investment. To calculate the future value of Pete's business, we can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the future value, P is the principal, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years. In this case, P = $65,000, r = 10% (or 0.10), n = 2 (semiannually compounded), and t = 5. Plugging in these values, we get A = $65,000(1 + 0.10/2)^(2*5) = $97,058.94. Pete should ask a price greater than $97,058.94 in order to make a better investment than selling his business and investing the money at 6% compounded quarterly.Let's calculate the future value of $70,000 invested at 6% compounded quarterly for 5 years. Using the formula A = P(1 + r/n)^(nt), where A is the future value, P is the principal, r is the interest rate, n is the number of times interest is compounded per year, and t is the number of years, we plug in the values P = $70,000, r = 6% (or 0.06), n = 4 (quarterly compounded), and t = 5. We get A = $70,000(1 + 0.06/4)^(4*5) = $90,822.53. Pete should ask a price greater than $90,822.53 to make a better investment than selling his business.In summary, Pete should ask a price greater than $97,058.94 or $90,822.53 to make a better investment than selling his business and investing the money at 6% compounded quarterly.
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CORRECT QUESTION :
Pete’s Real Estate is currently valued at $65,000. Pete feels the value of his business will increase at a rate of 10% per year, compounded semiannually for the next 5 years. At a local fundraiser, a competitor offered Pete $70,000 for the business. If he sells, Pete plans to invest the money at 6% compounded quarterly.What price should Pete ask? Verify your answer.
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