Question

In 2 years, Duncan wants to buy a bicycle that costs $400.00. If he opens a savings account that earns 11% interest compounded annually, how much will he have to deposit as principal to have enough money in 2 years to buy the bike?

Answer 1

Current deposit amount = $324.65 (Approx.)

Explanation:

Given:

Cost of bicycle = $400

Future amount = $400

Rate of interest = 11% = 0.11

Number of year = 2 year

Find:

Current deposit amount

Computation:

Compound interest formula

A = P[1+r]ⁿ

Future amount = Current deposit[1+Rate of interest]ⁿ

400 = Current deposit[1+0.11]²

400 = Current deposit[1.11]²

400 = Current deposit[1.2321]

Current deposit amount = 400 /1.2321

Current deposit amount = $324.65 (Approx.)