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Popular Word Problems >

In 1 year, Leah wants to buy a bicycle that costs 500.00. If she opens a savings account that earns 6% interest compounded continuously, how much will she have to deposit as principal to have enough money in 1 year to buy the bike?

Solution

I n 1 ye a r, L e ah w an t s t o b u y a bi cyc l e t ha t cos t s 500.00. I f s h e o p e n s a s a v in g s a cco u n t t ha t e a r n s 6% in t eres t co m p o u n d e d co n t in u o u s l y, h o w m u c h w i ll s h e ha v e t o d e p os i t a s p r in c i p a l t o ha v e e n o ug h m o n ey in 1 ye a r t o b u y t h e bik e ?

Solution

Principal : 470.88

Solution steps

Translate the problem into an equation:

500 = P e^{0.06 \cdot 1}

Solve for

P, 500 = P e^{0.06 \cdot 1} : P = 470.88

Principal : 470.88

Popular Examples

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