Your father invested a lump sum 28 years ago at 4.05 percent annual interest. Today, he gave you the proceeds of that investment, totalling $48,613.24. How much did your father originally invest?

Question

Quizplus · Accepted Answer

The original investment can be calculated using the formula for compound interest: $A = P(1 + r)^n$, where $A$ is the amount of money accumulated after n years, including interest, $P$ is the principal amount (the initial amount of money), $r$ is the annual interest rate (decimal), and $n$ is the time the money is invested for in years. Rearranging the formula to solve for $P$ gives $P = A / (1 + r)^n$. Substituting the given values ($A = 48613.24$, $r = 0.0405$, $n = 28$) into the formula gives $P = 48613.24 / (1 + 0.0405)^{28}$, which calculates to approximately $15,994.70.

Your Father Invested a Lump Sum 28 Years Ago at 4.05