Question

Pedro Pascal wants to have $15,000 in an account after five years. He found a bank that will offer him a 7.5% interest rate, compounded quarterly. How much does he need to put in the account today?

Answer 1

He needs to put $10345 in the account today, in order to get 15000 in five years.

Solution-

We know that,

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

Where,

A = future value of the investment with interest = 15000

P = principal investment amount

r = annual interest rate (decimal) = 7.5% = 0.075

n = number of times that interest is compounded per year = 4

t = the number of years the money is invested = 5

Putting the values,

`15000=P(1+(0.075)/(4))^(4 * 5)`

`\Rightarrow P=(15000)/((1+0.01875)^(20)) =(15000)/(1.01875^(20)) =(15000)/(1.45) =10344.8 \approx 10345`