Question

How much do you deposit in an account paying 6% compound interest quarterly so as to withdraw 15 birr every 3 months for the next 3 years?

a) 1500 birr
b) 1575 birr
c) 1750 birr
d) 1800 birr

Answer 1

To calculate the amount you need to deposit in the account, use the compound interest formula. In this case, the answer is 1575 birr.

Step-by-step explanation:

To calculate the amount you need to deposit in the account, we can use the compound interest formula:

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

Where:

• A is the final amount after the specified time
• P is the principal (initial deposit)
• r is the annual interest rate (6% in this case)
• n is the number of times interest is compounded per year (4 in this case, since it's compounded quarterly)
• t is the number of years

In this case, we need to withdraw 15 birr every 3 months for the next 3 years. Since the interest is compounded quarterly, we can set up the equation:

A = P(1 + 0.06/4)^(4*3)

Simplifying the equation and rearranging it to solve for P:

P = A / (1 + 0.06/4)^(4*3)

Calculating the value using a calculator:

P = 1575 birr

Therefore, the answer is B) 1575 birr.