Question

in 2 years Aisha wants to buy a bicycle that costs $800.00 if she opens a savings account that earns 4% interest compounded annually how much will she have to despoit as principal to have enough money in 2 years to buy the bike

Answer 1

In order to determine the money Aisha need at the beginning, use the following formula for interest compound anually:

$C_f=C(1+\frac{r}{100})^n$

- Cf is the money obtained after n years = $800.00

- C is the initial amount of money = ?

- r is the annually rate interest = 4%

- n is the time = 2

Solve for C in the previous formula, and replace the values of the given parameters:

$C=\frac{C_f}{(1+\frac{r}{100})^2}=\frac{800}{(1+\frac{4}{100})^2}=\frac{800}{(1.04)^2}=739.64$

Then, Aisha will have to deposit $739.64