Question

Lou Ling, owner of Lou’s Lube, estimates that he will need $70,000 for new equipment in 7 years. Lou decided to put aside money today so it will be available in 7 years. Reel Bank offers Lou 6% interest compounded quarterly. How much must Lou invest to have $70,000 in 7 years?

Answer 1

Answer:

The principal amount to be to be invested=$46,613.95

Explanation:

The total amount that Lou needs to invest with Reel bank in order to have for new equipment in 7 years is known as the principal amount.

The formula for calculating total amount on investment compounded quarterly;

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

A = the future value of the investment, including the interest

P = the initial investment amount

r = the annual interest rate

n = the number of times that interest is compounded per unit t

t = the time the money is invested or borrowed for

For our case;

A=$70,000

P=p

r=6/100=0.06

n=compounded quarterly=4

t=7 years

replacing;

70,000=p(1+0.06/4)^(4×7)

70,000=p(1.015)^28

70,000=1.517 p

1.517 p=70,000

p=70,000/1.517

p=46,613.95

The principal amount to be to be invested=$46,613.95