Savings

#581 / Economics Easy

What initial amount should an employee put into an investment with a 4% effective annual rate to have a future worth of $45,000 in 10 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.

$$$P=\$45,000(1+0.04)^{-10}=\$30,400.39$$$

$30,400.39

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