You go to the bank and open up a savings account. Your account earns 3% interest. If you want to have $1500 in 5 years, how much should you deposit now?

Question

I need this anwser asap and I have more questions to ask to because my exam is tomorrow!!!!! so please help

Answer 1

Let FV equal the future value you wish to have. In this case FV = $1599

Let P₀ = the initial deposit you must make. We will assume that the 3% interest compounds monthly.

Then we will use the formula for future value

FV = P₀ x ( 1 + i/12 )⁶⁰ where i is the annual interest rate. Substituting we have

1500 = P₀ x ( 1 + .03 /12 )⁶⁰ or

P₀ = 1500 / ( 1 + .03 / 12 )⁶⁰ = $1,291.30

Answer 2

If the interest is a simple interest, then here is the solution:

1500= X1+ 5*0.03*X1 ===> X1= 1304.34783