Question

Pedro Pascal wants to have $15,000 in an account after five years. He found a bank that will offer him a 7.5% interest rate, compounded quarterly. How much does he need to put in the account today?

Answer 1

Answer-

He needs to put $10345 in the account today, in order to get 15000 in five years.

Solution-

We know that,

$A=P(1+\frac{r}{n})^{nt}$

Where,

A = future value of the investment with interest  = 15000

P = principal investment amount

r = annual interest rate (decimal)  = 7.5% = 0.075

n = number of times that interest is compounded per year  = 4

t = the number of years the money is invested = 5

Putting the values,

$15000=P(1+\frac{0.075}{4})^{4 \times 5}$

$\Rightarrow P=\frac{15000}{(1+0.01875)^{20}} =\frac{15000}{1.01875^{20}} =\frac{15000}{1.45} =10344.8 \approx 10345$