Question

Find the lump sum that must be deposited today to have a future value of $32,000 in 5 years if funds earn 8% compounded annually.

Answer 1

$21,778.7

Explanation:

The formula for a compound interest is;

A = p(1 + r/100)ⁿ

Where A ⇒ Amount accumulated over the years

r ⇒ rate per year

n ⇒ the number of years

∴ A = p(1 + r/100)ⁿ

32,000 = p(1 + 8/100)⁵

32,000 = p × 1.08⁵

p = 32,000/1.08⁵

= $21,778.66

Answer to the nearest tenth = $21,778.7