Suppose you want to end up with $5,000 in a bank account after 4 years earning a rate of 3.5% compounding monthly. How much would you have to initially invest?

Question

anonymous · Answer

prt

anonymous · Answer

5000x3.5x4

anonymous · Answer

The formula for compound interest is $$A=P(1+\frac{r}{n})^{nt}$$where P is the principal (initial investment amount), r is the interest rate AS A DECIMAL, A is the annuity (final amount) n is the number of compoundings per year, and t is the time in years.

anonymous · Answer

You have the following variables:
A = 5000
r = 0.035 (3.5% as a decimal)
n = 12 (12 compoundings per year)
t = 4

You are solving for P.  Insert the variables into the equation and see what you get.

anonymous · Answer

A=Prt, unfortunately will not work in this case because that formula is for simple interest.