Question

If a person wants to have $2000 after 4 years, how much would they have to deposit into an account that pays 6.5% interest compounded monthly?

Answer 1

The amount is $2572.93 and the interest is $572.93.

Explanation:

STEP 1: To find amount we use formula:

A=P(1+rn)n⋅t

A = total amount

P = principal or amount of money deposited,

r = annual interest rate

n = number of times compounded per year

t = time in years

In this example we have

P=$2000 , r=6.5% , n=1 and t=4 years

After plugging the given information we have

AAAA=2000(1+0.0651)1⋅4=2000⋅1.0654=2000⋅1.286466=2572.93

STEP 2: To find interest we use formula A=P+I, since A=2572.93 and P = 2000 we have:

A2572.93II=P+I=2000+I=2572.93−2000=572.93