Question

How much money will you need to invest initially to have $2,500.00 in four years if the money is compound quarterly at an annual rate of 2 1/2%?

a. $2,327.98
b. $2,375.60
c. $2,450.25
d. $2,518.90

Answer 1

To reach $2,500.00 in four years with compound interest, you will need to initially invest approximately $2,375.60.

Step-by-step explanation:

To calculate the initial investment needed to reach $2,500.00 in four years with compound interest, we can use the formula for compound interest:

P = A/(1 + r/n)^(n*t)

In this case, A is the future value ($2,500.00), r is the annual interest rate (2.5% or 0.025), n is the number of compounding periods per year (4), and t is the number of years (4).

Plugging in the values, we get:

P = 2500/(1 + 0.025/4)^(4*4) ≈ $2,375.60

Therefore, the initial investment needed is approximately $2,375.60, which corresponds to option b.