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16 July, 20:02

Present Value How much should be deposited in an account paying 8% interest compounded querterly in order to have a balance of $20,000 five years from now?

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  1. 16 July, 22:29
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    Answer: $13456 should 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 8%. So

    r = 8/100 = 0.08

    It was compounded for 5 years. Therefore,

    t = 4

    The formula for compound interest is

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

    A = total amount in the account at the end of t years. The total amount is given as $20000. Therefore

    20000 = P (1+0.08/4) ^4*5

    21000 = P (1+0.02) ^20

    21000 = P (1.02) ^20

    P = 20000/1.486

    P = $13456
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