Financing Word Problem - HELP!

Question

How much should Jethro invest now to have $10 000 in 3 years time? The money will be invested at 5%/ a compounded monthly.

Answer 1

Hi Natalie,

 

I see that you are posting a lot of similar problems. Here is one general formula that will help you with these sorts of economics/algebra-based problems. It's the compound interest formula.

 

A = P(1+r/n)^(nt)

 

The amount (A) is equal to the principal (P, the starting amount) times 1 plus the interest rate (r, as a decimal) divided by the number of compoundings per year (n), raised to the number of compoundings per year (n) times the number of years (t).

 

 

For this problem, you are asked to find P.

 

1.) Plug in all of the pieces of information you have:

 

10,000 = P (1+0.05/12)^(12*3)

 

2.) Rearrange the equation to solve for P.

 

P = 10,000/[(1+0.05/12)^(36)]

 

 

 

 

Answer 2

three years compounded monthly is twelve times three or 36 periods. so somef amount x times 1 plus .05/12, raised to the 36th power equals 3000. solve for x..hope that helps.