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21 September, 02:39

Present Value Hoew much shuold be deposited in an account paying 7.8% interest compounded monthly in order to have a balance of $21,000 after 4 years?

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  1. 21 September, 03:01
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    Answer: $15385 should be deposited.

    Step-by-step explanation:

    The principal was compounded monthly. This means that it was compounded 12 times in a year. So

    n = 12

    The rate at which the principal was compounded is 7.8%. So

    r = 7.8/100 = 0.078

    It was compounded for 4 years. Therefore,

    t = 4

    The formula for compound interest is

    A = P (1+r/n) ^nt

    A = total amount in the account at the end of t years. The total amount is given as $21000. Therefore

    21000 = P (1+0.078/12) ^12*4

    21000 = P (1+0.078/12) ^48

    21000 = P (1+0.0065) ^48

    21000 = P (1.0065) ^48

    P = 21000/1.365

    P = $15385
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