To acquire $3500 in two years, one must currently invest $3086 at a compounded annual interest rate of 6.5%.
Compound interest is interest based on the initial principle plus all prior periods' accumulated interest. The power of compound interest is the ability to generate "interest on interest." Interest can be added at any time, from continuously to daily to annually.
Let p be the starting point.
The entire amount after two years at a compound interest rate of 6.5% will be
= [tex]p(1+\frac{6.5}{100}) ^{2}[/tex]
= [tex]p(\frac{106.5}{100}) ^{2}[/tex]
∴ [tex]p(\frac{106.5}{100}) ^{2} = 3500[/tex]
∴ P × 1.134 = 3500
∴ P = 3500/1.134
= 3085.80
= 3086
$3086 should be invested
To learn more about compound interest
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