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Popular Word Problems >

How much would you need to deposit in an account now in order to have 4000 in the account in 10 years? Assume the account earns 7% interest compounded monthly.

Solution

Ho w m u c h w o u l d yo u n ee d t o d e p os i t in an a cco u n t n o w in or d er t o ha v e 4000 in t h e a cco u n t in 10 ye a rs ? A ss u m e t h e a cco u n t e a r n s 7% in t eres t co m p o u n d e d m o n t h l y .

Solution

Principal : 1990.39

Solution steps

Translate the problem into an equation:

4000 = P (1 + \frac{0.07}{12})^{12 \cdot 10}

Solve for

P, 4000 = P (1 + \frac{0.07}{12})^{12 \cdot 10} : P = 1990.39

Principal : 1990.39

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