Santiago is going to invest in an account paying an interest rate of 3.3% compounded annually. How much would Santiago need to invest, to the nearest ten dollars, for the value of the account to reach 81,000 in 16 years?

Solution

S an t ia g o 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 3.3% co m p o u n d e d ann u a ll y . Ho w m u c h w o u l d S an t ia g o 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 81, 000 in 16 ye a rs ?

Principal : 48181.45

Solution steps

Translate the problem into an equation:

81000 = P (1 + \frac{0.033}{1})^{1 \cdot 16}

Solve for

P, 81000 = P (1 + \frac{0.033}{1})^{1 \cdot 16} : P = 48181.45

Principal : 48181.45