Business Math Problem

Question

Many students plan to travel after they graduate. Suppose a backpacking trip through Europe for 6 weeks will cost $3500. How much do you need to invest today to save $3500 in 4 years at 7.5%, compounded semi-annually? (4 marks)

Answer 1

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

where r=annual interest rate,

n=number of compounding periods per year,

t = number of years

P= amount invested

A = amount after t years at r interest rate compounded n times per year

3500=P(1+0.075/2)^2(4)

P = 3500/(1.0375)^8

P = $2607.13 invested today

7.5% compouned biannually for 4 years yields $3500