Problema Solution
Find the principal needed now to get the given amount; that is, find the present value.
To get $ 900 after 4 years at 12 % compounded monthly
Answer provided by our tutors
P = the principal
r = 0.12 or 12% interest
m = 12 compounding period per year (compounded monthly)
i = 0.12/12 = 0.01 interest rate per period
t = 4 years
n = t*m = 4*12 = 48 total number of compounding periods
A = $900 future value
A = P(1 + i)^n
P(1 + i)^n = A
P(1 + 0.01)^48 = 900
P*1.01^48 = 900
P = 900/1.01^48
P = $558.23
The principal needed is $558.23.