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by **Lucas** » Fri May 03, 2013 6:27 am

MYP Math, Financial Mathematics, Compound Interest, Present value

How can we calculate the amount to be deposit into an account to collect $140,000 at the end of 8 years if the account is paying 6% per annum compounded every month?

Thanks

by **nicole** » Fri May 03, 2013 6:33 am

MYP Math, Financial Mathematics, Compound Interest, Present value

The general compounding formula is:
$F=P \cdot (1+ \frac{r}{100})^n$

Where F is the future value of the investment (=$140,000), P the principal, r is the interest rate per compound period ( $\frac{6}{12}=\frac{1}{2}=0.5$ ) and n is the number of compounding periods (=8*12=96 months).
Therefore
$\$140,000=P \cdot (1+ \frac{1}{200})^{96}$

$\rightarrow P=\frac{140,000}{(1+ \frac{1}{200})^{96}}=\$86,733.34$

Hope these help!

by **Lucas** » Fri May 03, 2013 6:35 am

Thanks Nicole!!

ib maths4u | ib maths | ib math | ib mathematics

Financial math MYP Present value

Financial math MYP Present value

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