Question

Moxie wants to have $5000. how much money does she have to deposit in an account at 6% interest, compounded 3 times per year, in order to have $5000 at the end of 6 years?
a. $4000
b. $3500.80
c. $4279.04
d. $3820.36

Answer 1

Moxie wants to have $5000. how much money does she have to deposit in an account at 6% interest, compounded 3 times per year, in order to have $5000 at the end of 6 years?  The formula for compound interest AMOUNT is

A = P (1 + r/n)^(nt), 

where P is the principal and must be calculated here; A is the amount Moxie wants to have after 6 years, and is $5000; r is the annual interest rate, expressed as a decimal fraction:  0.06; n is the number of compounding periods per year, which here is 3; and t is the time, in years, here equal to 6.

Solve the following for P:  $5000 = P (1 + 0.06/3)^(3*6)

Hint:  $5000 = P (1.02)^18