Question

Francisco has a savings account balance of $2,033.88. The interest rate on the account is 2.9% compounded monthly. If he opened the account nine years ago, what was the value of his initial deposit?

Answer 1

Answer:

The value of his initial deposit was $1,567.15.

Step-by-step explanation:

The value of his initial deposit can be calculated using the formula for calculating present value (PV) as follows:

PV = FV / (1 + r)^n ....................................... (1)

Where;

PV = Present value of the deposit or initial deposit value 9 years ago = ?

FV = Future value or the deposit value today = $2,033.88

r = monthly interest rate = 2.9% / 12 = 0.029 / 12

n = 9 year * 12 months = 108 months

Substituting the values into equation (1), we have:

PV = $2,033.88 / (1 + (0.029 / 12))^108

PV = $2,033.88 / 1.29781895967285

PV = $1,567.15

Therefore, the value of his initial deposit was $1,567.15.