Katherine is going to invest in an account paying an interest rate of 5.8% compounded monthly. How much would Katherine need to invest, to the nearest ten dollars, for the value of the account to reach 960 in 16 years?

Solution

K a t h er in e 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 5.8% 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 K a t h er in e 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 960 in 16 ye a rs ?

Principal : 380.38

Solution steps

Translate the problem into an equation:

960 = P (1 + \frac{0.058}{12})^{12 \cdot 16}

Solve for

P, 960 = P (1 + \frac{0.058}{12})^{12 \cdot 16} : P = 380.38

Principal : 380.38