Final answer:
To determine how much money must be deposited now to be able to withdraw $11,500 in 4 years, we need to use the formula for compound interest.
Step-by-step explanation:
To determine how much money must be deposited now to be able to withdraw $11,500 in 4 years, we need to use the formula for compound interest. The formula is as follows:
A = P(1 + r/n)nt
Where:
A = Future Value
P = Present Value (the amount to be deposited now)
r = annual interest rate (as a decimal)
n = number of compounding periods per year
t = number of years
In this case, the future value is $11,500, the interest rate is unknown, the number of compounding periods per year is usually 1, and the number of years is 4. Plugging in the values, we have:
11,500 = P(1 + r)4
To solve for P, we can rearrange the equation:
P = 11,500 / (1 + r)4