Alang is going to invest in an account paying an interest rate of 5% compounded monthly. How much would Alang need to invest, to the nearest hundred dollars, for the value of the account to reach 58,000 in 5 years?

Solution

A l an g 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% 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 A l an g 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 58, 000 in 5 ye a rs ?

Principal : 45193.91

Solution steps

Translate the problem into an equation:

58000 = P (1 + \frac{0.05}{12})^{12 \cdot 5}

Solve for

P, 58000 = P (1 + \frac{0.05}{12})^{12 \cdot 5} : P = 45193.91

Principal : 45193.91