A mutual fund pays 11% compounded monthly. How much should I invest now so that 3 years from now I will have $4000 in the account? Amount = $

Answer 1

Given:

rate of return = 11% = 11/100 = 0.11

# of compounding periods = 12 (monthly)

time = 3 years

Future value = $4000

need to find: present value

Present Value = Future Value / (1+r)^t

adjusting for the monthly compounding:

Present Value = Future Value / (1 + r/12)^12t

Present Value = 4000 / (1 + 0.11/12)^12(3)

= 4000 / 1.389

= 2,879.77

Investing $2,879.77 in a mutual fund that pays 11% compounded monthly will yield $4,000 in 3 years.