Question

Find the principal amount invested if the amount in a semi-annually compounded account with a 5.05% interest rate is $16,360.93 after 60 months.

Answer 1

Use the compound amount formula:

A = P (1+r)^t (for annual compounding)

A = $16360.93 = P (1+0.505)^5

Solving for P: P = $16360.93 / 1.279 = $12,788.74


If compounding occurs monthly, the formula becomes


A = P (1 + r/n)^(nt), which here is


$16360.93 = P (1+0.0505/12)^(12*5)

$16360.93 = P (1.0042)^60

$16360.93
Solving for P: P = ------------------ = $12716.83 (assuming monthly
1.287 compounding)