Question

Bill is saving for his son's college education. If the savings account earns 5% interest compounded monthly, and he wants to have $45,000 in 10 years, what must the principal be?

Answer 1

Total money that will be in the account in 10 years = 45000

Time period = 10 years

Rate of interest = 5% or 0.05

n = 12 (number o times the money is compounded)

Let the principal (p) be = x

Formula for compound interest = $A=p(1+\frac{r}{n})^{nt}$

Putting the values in the formula we get,

$45000=x(1+\frac{0.05}{12})^{10*12}$

$45000=x(\frac{12+0.05}{12})^{120}$

$45000=x(1.004)^{120}$

$45000=1.614x$

$x=27881.04$

Hence, the principle amount should be approximately $27881.

Answer 2

Answer:

$27,322.25

Step-by-step explanation: