Question

How much would you need to deposit in an account now in order to have $20,000 in the accountfour years from now? Assume the account earns 5% simple interest.Enter a number rounded to two decimal places with no dollar sign or commas.

Answer 1

The formula for determining simpe interest is expressed as

I = PRT/100

where

I = interest

P = principal or initial amount deposited

R = interest rate

T = number of years

From the information given,

T = 4

R = 5

Recall,

Total amount = principal + interest

This means that

Interest = Total amount - principal

I = 20000 - P

Thus, we have

20000 - P = P * 5 * 4/100

20000 - P = 0.2P

0.2P + P = 20000

1.2P = 20000

P = 20000/1.2

P = 16666.67

The amount needed to be deposited is $16666.67