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In 3 years, Ronald wants to buy a bicycle that costs 700.00. If he opens a savings account that earns 2% interest compounded quarterly, how much will he have to deposit as principal to have enough money in 3 years to buy the bike?

Solution

Solution

Principal : 659.33

Solution steps

Translate the problem into an equation:

700 = P (1 + \frac{0.02}{4})^{4 \cdot 3}

Solve for

P, 700 = P (1 + \frac{0.02}{4})^{4 \cdot 3} : P = 659.33

Principal : 659.33

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