How much money must be put into a bank account yielding 3.5% (compounded annually)in order to have $1,250 at the end of 10 years (round to nearest $1)?

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to solve this problem, which is A=P(1+r/n)^(nt), where A is the amount at the end of the time period, P is the principal, r is the annual interest rate, n is the number of times compounded per year, and t is the time period in years. Plugging in the given values, we get:

1250 = P(1+0.035/1)^(1*10)

1250 = P(1.035)^10

1250/1.035^10 = P

P = $885.84 which rounds to $886

Therefore, the best choice is B as it is closest to the calculated value rounded to the nearest dollar.

How Much Money Must Be Put into a Bank Account