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Math Help - Could someone tell me how to set this up?

  1. #1
    Newbie
    Joined
    Oct 2009
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    6

    Could someone tell me how to set this up?

    1. Lisa's parents figure she needs $20,000 when she starts college in 5 years. How much must they invest now in an account paying 4% compounded quarterly so that she will have $20,000 when she starts college? Round to two decimal places


    2. How long will it take an investment of $5,000 to double in an account paying 3.5% compounded continuously? Round your answer to a while number.
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  2. #2
    MHF Contributor
    Joined
    Mar 2007
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    1,240

    Talking

    1) You have been given values for A, r, n, and t, and have been asked to find the value of P. So plug the given values into the compound-interest formula they gave you, and solve for the value of P.

    2) You have been given values for P and r, been told how to find the value for A, and been asked for the value of t. So plug the given values into the continuous-compounding formula they gave you, and solve for the value of t.

    If you get stuck, please reply showing your work so far. Thank you!
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  3. #3
    Senior Member
    Joined
    Feb 2008
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    383
    Formula for calculating compound interest:

    A = P\left(1 + \frac{r}{n}\right)^{nt}

    Where,

    * P = principal amount (initial investment)
    * r = annual nominal interest rate (as a decimal)
    * n = number of times the interest is compounded per year
    * t = number of years
    * A = amount after time t

    1)

    * P = ?
    * r = 4/100
    * n = 4
    * t = 5
    * A = 20,000

    Put this in the equation:

    20000 = P\left(1 + \frac{0.04}{4}\right)^{4*5}

    then rearrange the equation to get P

    for 2) do the same.
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  4. #4
    Newbie
    Joined
    Oct 2009
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    Alright so after using the first formula I've came to the conclusion that P=16390.89

    for the second question I got 20 because I have to round it to a whole number.
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