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7 August, 13:56

Present Value How much should be deposited in an account paying 5% interest compounded querterly in order to have a balance of $12,000 three years from now?

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  1. 7 August, 16:13
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    Answer:$103445 would be deposited

    Step-by-step explanation:

    The principal was compounded quarterly. This means that it was compounded 4 times in a year. So

    n = 4

    The rate at which the principal was compounded is 5%. So

    r = 5/100 = 0.05

    It was compounded for just a year. So

    t = 3

    The formula for compound interest is

    A = P (1+r/n) ^nt

    A = total amount in the account at the end of t years. A is already given as $12000

    Therefore

    12000 = P (1+0.05/4) ^4*3

    12000 = P (1+0.0125) ^12

    12000 = P (1.0125) ^12

    P = 12000/1.16 = $103445
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