Question

A

Cynthia invests some money in a bank which pays
5% compound interest per year.
She wants it to be worth over £8000 at the end of 3 years
What is the smallest amount, to the nearest pound, she can invest?

Answer 1

Intital investment= £6,911.57

Explanation:

Giving the following information:

Future Value (FV)= £8,001

Number of periods (n)= 3 years

Interest rate (i)= 5% = 0.05 compounded annually

To calculate the initial investment (PV) needed to reach £8,001 (over £8,000) in 3 years, we need to use the following formula:

PV= FV / (1+i)^n

PV= 8,001 / (1.05^3)

PV= £6,911.57