Suppose you want to end up with $5,000 in a bank account after 4 years earning a rate of 3.5% compounding monthly. How much would you have to initially invest?

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Answer 1 · 2017-05-23T13:02:34

#"Initial investment "~~$4347.68# rounded to 2 decimal places

Annual interest is 3.5% so monthly this is

#3.5/12%->3.5/(12xx100)=3.5/(1200)#

The time span is 4 years but the calculation cycle is monthly. Thus the time span is #4xx12=48# months

Let the principle sum be #P# giving:

#P(1+3.5/(1200))^48=$5000#

Divide both sides by #(1+3.5/1200)^48#

#P=$4347.677015...#

#P~~$4347.68# rounded to 2 decimal places