60.7k views
1 vote
"want to buy a car in 10 years' time. It will cost £10,000. How much money do I need to put in the bank today if the interest rate is 5% (per annum, compound)?"

1 Answer

3 votes
To determine how much money you would need to put in the bank today to reach your goal of £10,000 in 10 years at a 5% annual compound interest rate, you would use the formula:

FV = PV (1 + r)^n

Where:
FV = future value (the amount you want in the bank in 10 years)
PV = present value (the amount you need to deposit today)
r = interest rate (expressed as a decimal)
n = number of years

Plugging in the known values:

£10,000 = PV (1 + 0.05)^10

To solve for PV, you would divide both sides by (1 + 0.05)^10:

PV = £10,000 / (1 + 0.05)^10

PV ≈ £6,139.

So you would need to deposit £6,139 into the bank today to reach your goal of £10,000 in 10 years at a 5% annual compound interest rate.
User Xzhsh
by
8.2k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories