How much do you need to deposit today if you want to have one million dollars in 20 years at an account which pays 6% interest compounded monthly?

Question

kropot72 · Answer

Let the amount of the required deposit be P. Then the value of P can be found as follows:
$$\large P=\frac{10^{6}}{1.005^{(20\times12)}}=you\ can\ calculate$$

anonymous · Answer

how did you get 1.005?

kropot72 · Answer

0.005 is the effective monthly rate of interest as a decimal. It is the value of 0.06/12. Then 0.005 must be added to 1, the reason being to follow the equation for monthly compounding:
$$\large A=P(1+\frac{r}{12})^{(n \times12)}$$
where r is the annual rate as a decimal, and n is the number of years.

anonymous · Answer

makes sense now! thank you! can you help me with another one?

kropot72 · Answer

Please post any more as new questions. Thank you :)