Question

Jazelle Momba wants to visit her family in Zimbabwe in 2025, which is 6 years from now. She knows that it will cost approximately $8,000 including flight costs, on-the-ground costs, and extra spending money to stay for 4 months. If she opens an account that compounds interest at 4% semiannually, how much does she need to deposit today to cover the total cost of her visit?

Answer 1

9514 1404 393

Answer:

  $6307.95

Step-by-step explanation:

The compound interest formula can help with that.

  A = P(1 +r/n)^(nt) . . . . value of principal P at rate r for t years, compounded n times per year.

  P = A(1 +r/n)^(-nt) = $8000(1 +0.04/2)^(-2·6) = $8000(1.02^-12) = $6307.95

Momba needs to deposit $6307.95 today to have $8000 in 6 years.