Question

How much money should be deposited today in an account that earns 6% compounded semiannually so that it will accumulate to $14,000 in three​ years?

Answer 1

Answer:

The amount of money to be deposited today is $11,725

Step-by-step explanation:

In this question , we are concerned with calculating the amount of money that should be deposited presently to have $14,000 in three years.

To get this, we have to use the compound interest formula

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

where A is the amount to be earned after the end of the compounding period which is $14,000 according to this question

P is the initial amount to be deposited which is what we are looking for

r is the rate of compounding which is 6% or simply 6/100 = 0.06

n is the number of times interest is compounded yearly which is semiannually according to the question and this means 2

t is the number of years which is 3 according to the question

Now, plugging all these values, we have;

14,000 = P( 1 + 0.06/2)^(3 * 2)

14,000 = P(1+0.03)^6

14,000 = P(1.03)^6

14,000 = 1.194P

P = 14,000/1.194

P = 11,724.77 which is approximately $11,725