Question

A man wishes to keep some money in savings de-

posit at 25% compound interest so that after 3
years he can buy a car for N150000. How much
does he need to deposit now? ​

Answer 1

He needs to deposit N76800 now.

Explanation:

The amount of money is compound interest after t years is given by:

`P(t) = P(0)(1+r)^t`

In which P(0) is the initial amount of money invested and r is the interest rate, as a decimal.

25% compound interest so that after 3 years to buy a car for N150000.

This means that:

`t = 3, P(t) = 150000, r = 0.25`. So

`P(t) = P(0)(1+r)^t`

`P(t) = P(0)(1+0.25)^t`

`P(t) = P(0)(1.25)^t`

`150000 = P(0)(1.25)^3`

`P(0) = (150000)/((1.25)^3)`

`P(0) = 76800`

He needs to deposit N76800 now.