Ian is going to invest in an account paying an interest rate of 5.6% compounded monthly. How much would Ian need to invest, to the nearest ten dollars, for the value of the account to reach 21,400 in 19 years?

Solution

I an 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 5.6% 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 I an n ee d t o in v es t, t o t h e n e a res t t e n 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 21, 400 in 19 ye a rs ?

Principal : 7402.86

Solution steps

Translate the problem into an equation:

21400 = P (1 + \frac{0.056}{12})^{12 \cdot 19}

Solve for

P, 21400 = P (1 + \frac{0.056}{12})^{12 \cdot 19} : P = 7402.86

Principal : 7402.86