Problema Solution
Jim Smith believes he will need $80,000 in 30 years to buy a retirement cottage. Assuming he gets an interest rate of 9% compounded annually, how much interest will he earn if he invests today?
Answer provided by our tutors
A = the future value after 30 year
P = $80,000 is the principal
I = A - P is the interest
t = 30 year the number of years
m = 1 the number of compounding periods per year
n = m*t = 1*30 = 30 the number of compounding periods
r= 0.09 or 9% the annual interest rate
A = P(1 + r)^n
A = 80000(1 + 0.09)^30
by calculating we find:
A = $1,061,414.28
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I = 1,061,414.28 - 80,000
I = $981,414.28
Jim Smith will earn $981,414.28 interest if he invests today.