An investor wishes to accumulate $950 000 at the end of four-and-a-half years.How much does he need to deposit now,if the interest rate is 12% per annum,compounded monthly (to the nearest dollar)?

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for compound interest is:A = P(1 + r/n)^(nt)where:A is the future value of the investmentP is the principal (the amount invested)r is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, we have:A = $950,000r = 12% = 0.12n = 12 (monthly)t = 4.5 yearsSubstituting these values into the formula, we get:$950,000 = P(1 + 0.12/12)^(12 * 4.5)$950,000 = P(1.1)^54$950,000 = P(2.714)P = $950,000 / 2.714P = $555,098 (rounded to the nearest dollar)Therefore, the investor needs to deposit $555,098 now in order to accumulate $950,000 at the end of four-and-a-half years.

An Investor Wishes to Accumulate $950 000 at the End