Question

in 3 years Donald wants to buy a bicycle that costs 600.00 if he opens a savings account that earns 4% interest compounded quarterly how much will he have to despoit as principal to have enough money in 3 years to buy the bike

Answer 1

We want the future value to be $600. With an interest of 4% quarterly in 3 years, we have the following information:

`\begin{gathered} FV=600 \\ i=0.04 \\ t=3 \\ n=4 \end{gathered}`

Then we apply the following formula:

`PV=(FV)/((1+(i)/(n))^(n\cdot t))`

therefore, we have that:

`PV=(600)/((1+(0.04)/(4))^(4\cdot3))=(600)/((1.01)^(12))=532.46`

therefore, Donald would have to deposit $532.46 as principal.