I need help and this question explained

Question

Jim

Roznowski wants to invest some money now to buy a new tractor in the future. If he wants to have 375,000 available in 5 years, how much does he need to invest now in a CD paying 4.75% interest compounded monthly?

Answer 1

A = P (1 + r/n)^tn this is the formula for compound interest. A is the amount in the account, p is the principal (the amount you begin with), r is the annual interest rate (written as a decimal), n is the number of interest periods in 1 year, and t is the number of years.

For this problem, you are looking for P, the amount he needs to invest.

A = $375,000 , r = .0475 , n = 12 , t = 5

So, you have,

375000 = P (1 + .0475/12) ^{(12 x 5)} or,

P = 375,000/ (1 + .0475/12)⁶⁰ = $295,862.51