Saving for the Future
What initial amount should a tutor put into an investment with a 7% effective annual rate to have a future worth of $15,000 in 5 years?
Expand Hint
The question is asking for the present value/worth,
$$P$$
, given the future worth,
$$F$$
.
Hint 2
Single Payment Present Worth:
$$$P=F(1+i)^{-n}$$$
where
$$i$$
is the interest rate per interest period, and
$$n$$
is the number of compounding periods.
The question is asking for the present value/worth (initial principal balance),
$$P$$
, given the future worth,
$$F$$
. Single Payment Present Worth:
$$$P=F(1+i)^{-n}$$$
where
$$i$$
is the interest rate per interest period, and
$$n$$
is the number of compounding periods.
$$$P=\$15,000(1+0.07)^{-5}=\$10,694.79$$$
The tutor should put in $10,694.79 as an initial investment.
$10,694.79
Time Analysis
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