How much would you need to deposit in an account now in order to have $2000 in the account in 10 years? Assume the account earn 3% interest compound monthly

Answer 1

Using the time value of money equation, we can calculate as follows: FV = PV *((1+i)^n)

Where FV = Future Value, PV = Present Value, i = interest for the period and n = number of periods

Before we start, we need to adjust the interest rate to find the monthly equivalent. Most interest rates are quoted per annum. Since the compounding period here is monthly, we will divide 3% by 12 to get a monthly interest rate of 0.25%.

PV = ?

FV = 2,000

i = 0.25%

n = 10*12 = 120

2,000 = PV * ((1+0.0025)^120)

Solve for PV: PV = $1,482.19