Question

You decide you want to be able to withdraw from your savings account $3000 a month over the next 7 years at 7% interest. What do you need to deposit now in order for that to happen?

Answer 1

$4281.43

Explanation:

Using the compound interest formula

A = P(1+r/n)^nt

A = 3000

rate r = 7%

n is the compounding time = 1/12

t is the total time = 7years

Substitute

A = 3000(1+0.07(12))^7/12

A =3000(1+0.84)^0.5833

A = 3000(1.84)^0.5833

A = 3000(1.4271)

A = 4281.43

Hence she must have deposited $4281.43