Julieta is going to invest in an account paying an interest rate of 4% compounded monthly. How much would Julieta need to invest, to the nearest hundred dollars, for the value of the account to reach 190 in 7 years?

Solution

J u l i e t a i s g o in g t o in v es t in an a cco u n t p a y in g an in t eres t r a t e o f 4% co m p o u n d e d m o n t h l y . Ho w m u c h w o u l d J u l i e t a n ee d t o in v es t, t o t h e n e a res t h u n d re d d o ll a rs, f or t h e v a l u e o f t h e a cco u n t t o re a c h 190 in 7 ye a rs ?

Principal : 143.67

Solution steps

Translate the problem into an equation:

190 = P (1 + \frac{0.04}{12})^{12 \cdot 7}

Solve for

P, 190 = P (1 + \frac{0.04}{12})^{12 \cdot 7} : P = 143.67

Principal : 143.67