Kevin is going to invest in an account paying an interest rate of 2% compounded monthly. How much would Kevin need to invest, to the nearest hundred dollars, for the value of the account to reach 84,000 in 10 years?

Solution

Ke v in 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 2% 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 Ke v in 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 84, 000 in 10 ye a rs ?

Principal : 68784.83

Solution steps

Translate the problem into an equation:

84000 = P (1 + \frac{0.02}{12})^{12 \cdot 10}

Solve for

P, 84000 = P (1 + \frac{0.02}{12})^{12 \cdot 10} : P = 68784.83

Principal : 68784.83