Question

Joseph Harris is considering an investment that pays 6.5 percent annually. How much does he need to invest today so that he will have $25,000 in seven years? (Round to the nearest dollar.)

Answer 1

Answer:

$16,088

Explanation:

Data provided in the question:

Interest rate paid, r = 6.5% = 0.065

Future value = $25,000

Time period, n = 7 years

Now,

The Future value using the formula for compounding is given as:

Future value = Amount deposited × ( 1 + rate )ⁿ

or

$25,000 = Amount deposited × ( 1 + 0.065)⁷

or

$25,000 = Amount deposited × 1.554

or

Amount deposited = $25,000 ÷ 1.554

or

Amount deposited = $16,087.65 ≈ $16,088