Question

i am trying to find out how much i need to deposit to get 25000 in 6years 5% compounded semiannually, could you please help me with the correct formula? i have tried but to no avail thank you in advance

Answer 1

As I said in your previous question, the formula is

Effective interest rate r = (1 + APR/[# of times compounded])^[# of times compounded] - 1

= (1 + 0.05/2)^2 - 1 = 0.050625 or 5.0625% per annum.

So over 6 years you start with an amount D, which becomes at the end of:

1 year D(1.050625)
2 year D(1.050625)^2
3 year D(1.050625)^3
4 year D(1.050625)^4
5 year D(1.050625)^5
6 year D(1.050625)^6

So you have an unknown variable D which is multiplied by (1.050625)^6 to get D + 25000.

Then:
D(1.050625)^6 = D + 25000
D(1.050625)^6 - D = 25000
1.34488882424*D - D = 25000
0.34488882424*D = 25000
D = 25000/0.34488882424 ~= $8622.22

Answer 2

nicely explained rav, i tried your other way but was struggling with it, just thought i had worded it incorrectly

Answer 3

Thanks, sorry I made a mistake at the very end, I multiplied instead of dividing... that number should be $72487.13 not $8622

Answer 4

But the rest of it is correct don't worry

Answer 5

lol