Emma is going to invest in an account paying an interest rate of 5.5% compounded annually. How much would Emma need to invest, to the nearest hundred dollars, for the value of the account to reach 480 in 8 years?

Solution

E mma 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 5.5% 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 E mma 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 480 in 8 ye a rs ?

Principal : 312.77

Solution steps

Translate the problem into an equation:

480 = P (1 + \frac{0.055}{1})^{1 \cdot 8}

Solve for

P, 480 = P (1 + \frac{0.055}{1})^{1 \cdot 8} : P = 312.77

Principal : 312.77