Question

Present Value Hoew much shuold be deposited in an account paying 7.2% interest compounded monthly in order to have a balance of $8000 after 3 years?

Answer 1

Answer:$6451.6 should be deposited.

Step-by-step explanation:

The principal was compounded monthly. This means that it was compounded 12 times in a year. So

n = 12

The rate at which the principal was compounded is 7.2%. So

r = 7.2/100 = 0.072

It was compounded for 3 years. So

t = 3

The formula for compound interest is

A = P(1+r/n)^nt

A = total amount in the account at the end of t years. A is given as $8000 Therefore,

8000 = P (1+0.072/12)^12×3

8000 = P(1+0.006)^36

8000 = P(1.006)^36

P = 8000/1.24

P = $6451.6