You would like to have 5, 000.00 in a savings account after 5 years. Your savings account has a 9.5% interest rate, compounded quarterly. How much must you deposit in that account now to reach your goal?

Solution

Y o u w o u l d l ik e t o ha v e 5, 000.00 in a s a v in g s a cco u n t a f t er 5 ye a rs . Y o u r s a v in g s a cco u n t ha s a 9.5% in t eres t r a t e, co m p o u n d e d q u a r t er l y . Ho w m u c h m u s t yo u d e p os i t in t ha t a cco u n t n o w t o re a c h yo u r g o a l ?

Principal : 3126.74

Solution steps

Translate the problem into an equation:

5000 = P (1 + \frac{0.095}{4})^{4 \cdot 5}

Solve for

P, 5000 = P (1 + \frac{0.095}{4})^{4 \cdot 5} : P = 3126.74

Principal : 3126.74