Suppose you want to have 10000 in an account at the end of 15 years. How much money would need to be deposited now if the account earns 5% interest compounded quarterly? Round the answer to the nearest cent.

Solution

S u pp ose yo u w an t t o ha v e 10000 in an a cco u n t a t t h e e n d o f 15 ye a rs . Ho w m u c h m o n ey w o u l d n ee d t o b e d e p os i t e d n o w i f t h e a cco u n t e a r n s 5% in t eres t co m p o u n d e d q u a r t er l y ? R o u n d t h e an s w er t o t h e n e a res t ce n t .

Principal : 4745.68

Solution steps

Translate the problem into an equation:

10000 = P (1 + \frac{0.05}{4})^{4 \cdot 15}

Solve for

P, 10000 = P (1 + \frac{0.05}{4})^{4 \cdot 15} : P = 4745.68

Principal : 4745.68