Question

How much would you need to deposit in an account now in order to have $3000 in the account in 10 years? Assume the account earns 5% interest compounded monthly.

Answer 1

Initial deposit = $1812.47

Explanation:

Applying the compound interest formula

A = P ( 1 + r/n
`)^(nt)` ---- ( 1 )

A ( final amount ) = $3000

P = ?

r = 5% = 0.05

n = 12 * 10 = 120 ( given interest is compounded monthly )

t = 10 years

Back to equation ( 1 )

P = A / ( 1 + r/n
`)^(nt)`

= 3000 / ( 1 + 0.00042)^1200

= 3000 / 1.6552

= $1812.47