Present Value How much should be deposited in an account paying 5% interest compounded querterly in order to have a balance of $12,000 three years from now?

Question

Margaret Pittman

Mathematics

8 December, 20:11

Present Value How much should be deposited in an account paying 5% interest compounded querterly in order to have a balance of $12,000 three years from now?

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Ruben Herman · Answer 1

Answer:$103445 would be deposited

Step-by-step explanation:

The principal was compounded quarterly. This means that it was compounded 4 times in a year. So

n = 4

The rate at which the principal was compounded is 5%. So

r = 5/100 = 0.05

It was compounded for just a year. So

t = 3

The formula for compound interest is

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

A = total amount in the account at the end of t years. A is already given as $12000

Therefore

12000 = P (1+0.05/4) ^4*3

12000 = P (1+0.0125) ^12

12000 = P (1.0125) ^12

P = 12000/1.16 = $103445