Question

The formula P=A/(1+r)^t can be used to relate the future value A of a deposit of P dollarsin an account that earns an annual interest rate r (expressed as a decimal) after t years.How much would you have to deposit today in order to have $5000 in 4 years in abank account that pays 5% annual interest?

Answer 1

Given the formula

`P=(A)/((1+r)^t)`

And given the information:

A = $5000

r = 0.05 (5%)

t = 4 years

Substituting the values in the formula:

`\begin{gathered} P=(5000)/((1+0.05)^4) \\ P=(5000)/(1.05^4) \\ P=(5000)/(1.2155) \\ P=4113.5 \end{gathered}`

Answer: You have to invest $4113.5.