Question

How much money should be invested now (rounded to the nearest cent), called the initial investment, in a Municipal Bond investment that yields 6% per year, compounded monthly for 10 years, if you wish it to be worth $20,000 after 10 years?

Answer 1

The formula for annual compound interest, including principal sum, is:
A = P (1 + r/n)ⁿˣ

A = the future value = $ 20,000
P = the principal investment amount = Not given
r = the annual interest rate (decimal) = 0.06
n = the number of times that interest is compounded per year = 12
x = the number of years = 10

$ 20,000 = P (1 + 0.06/12)¹²⁰
$ 20,000 = P (1 +0.005 )¹²⁰
$ 20,000 = P (1.005 )¹²⁰
$ 20,000 = 1.81·P
P = $ 20,000÷1.81
P = $ 11,049.72