Question

Cynthia invests some

money in a bank which
5% compound interest per year.
pays
She
wants it to be worth
over £8000 at the end of 3
years.
What is the smallest amount, to the nearest pound, she can invest?
I

Answer 1

The smallest amount is £6911

Explanation:

Rate of Interest = R = 5% per year

Duration in years = n = 3 year

Amount expected after three years when compounded annually = A = £8000

Formula for Amount of compound interest annually is a follows

A = P( 1 + R/100)^n

In our case Principal P = x , Amount A = 8000 , R = 5% and n = 3( since compounded annually). On substituting these values in above formula we get

8000 = x ( 1 + 5/100)^3

⇒8000 = x ( 105/100)^3

⇒8000 = x ( 21/20 )^3

⇒(8000 × 20 × 20 × 20)/(21×21×21) = x

⇒x = 6910.70≈6911