Question

Talia wishes to invest a lump sum today so that she can save $25 000 in 5 years for a European holiday. She chooses an account earning 3.6% p.a. compounded monthly. How much does Talia need to invest to ensure that she reaches her goal?

Answer 1

$ 20833.33

Explanation:

A = P (1+r/100)^t

Here, A = 25000, r = 3.6% per annum = 0.3% per month, t = 5 years = 60 months, P = ?

So,

25000 = P[1+(0.3)/(100)]^60

Or, 25000 = P (1.003)^60= 1.962P = 1.2 P (approx)

Or, P = (25000)/(1.2) = 20833.33