Determine the principal P

Question

Determine the principal P that must be invested at rate r = 6%, compounded monthly, so that $500,000 will be available for retirement in t = 9 years. (Round your answer to the nearest cent.)

P = $  

Answer 1

The formula for compound interest is

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

where A is the final amount, n is the umber of times we calculated interest year

r = 6% = 6/100 = 0.06

n = 12 (because we have 12 months in a year)

500,000 = P(1+0.06/12)^12*9

500,000 = P(1.005)¹⁴⁴

500,000 = P*2.0508 (divide both sides by 2.0508)

P = $243813.14

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