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26 June, 20:20

Francisco has a savings account balance of $2033.88. The interest rate on the account is 2.9% compounded monthly. If he opened the account nine years ago, what was the value of his initial deposit?

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  1. 26 June, 20:39
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    The equation for this is:

    F = P (1+i) ⁿ

    where

    F is the present accounts balance

    P is the initial deposit

    i is the interest rate

    n is the number of months

    The interest rate is nominal which is 2.9% per year compounded monthly. Since there are 12 months in a year, that is equal to an effective interest rate of 0.24167% per month compounded monthly (i = 0.0024167). In 9 years, there are a total of 108 months, so n=108.

    $2033.88 = P (1+0.0024167) ¹⁰⁸

    P = $1567.147
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