Question

A bank pays 5% interest compounded annually. What principal will grow to $12,000 in 10 years.

Answer 1

Answer: 7366.96 dollars

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Use the compound interest formula:

A = P(1+r/n)^(n*t)

where in this case,

A = 12000 = amount after t years

P = unknown = deposited amount we want to solve for

r = 0.05 = the decimal form of 5% interest

n = 1 = refers to the compounding frequency (annual)

t = 10 = number of years

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Plug all these values into the equation, then solve for P

A = P(1+r/n)^(n*t)

12000 = P(1+0.05/1)^(1*10)

12000 = P(1.05)^(10)

12000 = P(1.62889462677744)

12000 = 1.62889462677744P

1.62889462677744P = 12000

P = 12000/1.62889462677744

P = 7366.95904248911

P = 7366.96