Question

A company will need ​$45000 in 5 years for a new addition. To meet this​ goal, the company deposits money in an account today that pays 7​% annual interest compounded quarterly. Find the amount that should be invested to total ​$45,000 in 5 years?

Answer 1

The general formula is
A = P ( 1 + $\frac{I}{100}) ^ t$

Where:
P = principal that becomes A in t years at the rate I% compound interest per annum.

Here the rate is 7% per annum (12 months)
So I is 1.75% per quarter (3 months)
So t will also be in quarters.

Put:
A = 45000
I = 1.75
t = 20 (since there are 20 quarters in 5 years)(5 years * 4 quarters per year)

45000 = P* $\frac{1.75}{100} ^{20}$
P = $\frac{45000} {1.0175^{20} }$
= $\frac{45000}{1.41477819576}$
≈$31807.12

Thus, the amount that should be invested is $31,807.12