Tariq is going to invest in an account paying an interest rate of 5.8% compounded quarterly. How much would Tariq need to invest, to the nearest hundred dollars, for the value of the account to reach 600 in 20 years?

Solution

T a r i q 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 q u a r t er l y . Ho w m u c h w o u l d T a r i q 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 600 in 20 ye a rs ?

Principal : 189.66

Solution steps

Translate the problem into an equation:

600 = P (1 + \frac{0.058}{4})^{4 \cdot 20}

Solve for

P, 600 = P (1 + \frac{0.058}{4})^{4 \cdot 20} : P = 189.66

Principal : 189.66