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?

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