Question

What initial investment must be made to accumulate $120000 in 12 years if the money is invested in a mutual fund that pays 14%annual interest, compounded monthly? Use the analytical solution to find the answer.

Answer 1

What initial investment must be made to accumulate $120000 in 12 years if the money is invested in a mutual fund that pays 14%

annual interest, compounded monthly?

Remember that

The compound interest formula is equal to

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

where

A is the Final Investment Value

P is the Principal amount of money to be invested

r is the rate of interest in decimal

t is Number of Time Periods

n is the number of times interest is compounded per year

in this problem we have

A=$120,000

t=12 years

r=14%=14/100=0.14

n=12

substitute in the given formula

`120,000=P(1+(0.14)/(12))^(12\cdot12)`

Solve for P

P=$22,583.42