Question

How much do you have to deposit today in order to have $5000 in two years?Assume the APR is 3% compounding quarterly.A. $625.00B. $4709.88C. $5307.99D. $4375.00

Answer 1

We are asked to find the principal for an amount compounded quarterly. Let's remember the formula for a future compounded quarterly:

$A=P(1+\frac{r}{4})^{4t}$

We solve for P:

$\frac{A}{(1+\frac{r}{4})^{4t}}=P$

We are given the following values:

$\begin{gathered} A=5000 \\ r=0.03 \\ t=2 \end{gathered}$

Replacing we get:

$\frac{5000}{(1+\frac{0.03}{4})^{(4)(2)}}=P$

Solving the operations:

$4709.88=P$

Therefore, the initial value must be $4709.88