How much money should be deposited today in an account that earns 7% compounded semiannually so that it will accumulate to $12,0

Question

2 years ago

5

00 in four years?

1 answer:

Korvikt [17] · Answer 1 · 2022-04-26T12:57:01+03:00

Given rate is = 7% or 0.07

Total amount needed = $12000

Time = 4 years

Here, the deposit is compounded semiannually, means twice per year and this gives 8 annual compounding periods in 4 years.

The equation becomes:

P= $\frac{12000}{(1+\frac{0.07}{2})^{2.4}}$

P = $\frac{12000}{1.035^{8}}$

Solving it, we get P = $ 9112.93

Hence $9112.93 should be deposited today.