Question

Tori needs to make some house repairs in three years that will cost $9,000. She has some money in an account earning 9% annual interest. How much money needs to be in the account today so she will have enough to pay for the repairs

Answer 1

She needs to have approximately $6950 on that account.

Explanation:

Since the account has an interest rate of 9% annually, then it's compounded and the earnings can be found by the following expression:

`M = C*(1 + r)^t`

Where M is the final amount, C is the initial amount, r is the interest rate and t is the time elapsed in years.

She needs the money in 3 years, therefore t = 3. Applying this to the problem we have:

`9000 = C*(1 + 0.09)^3\\9000 = C*(1.09)^3\\C*1.295 = 9000\\C = (9000)/(1.295)\\C = 6949.81`

She needs to have approximately $6950 on that account.