How much money should be deposited today in an account that earns 3.5 % compounded monthly so that it will accumulate to $ 12 comma 000 in 3 ​years?

Answer 1

I disagree with the previous answer because the author incorrectly divided the interest rate by 100 instead of 12.

We can also plug those numbers into the Excel or Google Sheets PV function to get the following set up:

= PV (rate, number of periods, monthly payment, future value, begin/end of period)

Rate = 3.5% / 12 because of monthly compounding

Number of periods = 3 *12 because of monthly compounding

Monthly payment = 0 because you are not adding anything each month

Future value = 12,000 as stated in the problem

Begin/end of period = 0 (I assume end of period, which is the default)

= PV (0.035/12, 3*12, 0, 12000, 0)

Hit enter and your answer is $10,805.55. Note that Excel/Sheets will show the answer as negative because you are investing it today, so it is leaving your pocket.

I hope that helps.

Answer 2

Always remember this formula:

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

A is the final amount

p is the principal amount

r is the rate

n is the number of times the rate is applied

t is time.

let's insert the values.

12000=p(1+3.5/100)^3*12

12000=3.45p

p=12000/3.45

p=3478