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In 2 years, Luther wants to buy a bicycle that costs 500.00. If he opens a savings account that earns 2% interest compounded monthly, how much will he have to deposit as principal to have enough money in 2 years to buy the bike?

Solution

Solution

Principal : 480.41

Solution steps

Translate the problem into an equation:

500 = P (1 + \frac{0.02}{12})^{12 \cdot 2}

Solve for

P, 500 = P (1 + \frac{0.02}{12})^{12 \cdot 2} : P = 480.41

Principal : 480.41

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