Question

The formula A = P(1 + r) can be used to relate the future value A of a deposit of P dollarsin an account that earns an annual interest rate r (expressed as a decimal) after t years.a. Solve the formula for P.b. How much would you have to deposit today in order to have $5000 in 4 years in abank account that pays 4% annual interest?

Answer 1

SOLUTIONS

The formula A = P(1 + r) can be used to relate these

(a)

`P=(A)/((1+r)^t)`

`\begin{gathered} 5000=\text{ P\lparen1+r\rparen}^t \\ r=0.04 \\ 5000=p(1+0.04)^4 \\ 5000=p(1.04^4) \\ p=\frac{5000^{}}{1.1698} \\ p=4274.23 \end{gathered}`

Therefore the value of the present value = $4274.23