Problema Solution

Brian wants to have $7000 in the bank in 10 years. He deposits $3000 today at 8% interest compounded semiannually. How much additional money will he need to reach the desired $7000.

Answer provided by our tutors

P = $3,000 the principal


r = 0.08 or 8% annual interest rate


m = 2 compounding period per year (compounded semiannually)


i = r/m = 0.08/2 = 0.04 interest rate per period


t = 10 years


n = t*m = 10*2 = 20 total number of compounding periods


A = the future value (the amount in the account after t years)


A = P(1 + i)^n


A = 3000*(1 + 0.04)^20

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A = $6,573.37


$7,000 - $6,573.37 = $426.63


Brain will need $426.63 additional money to reach the desired $7,000.