In 2 years, Dirk wants to buy a bicycle that costs 1,000.00. If he opens a savings account that earns 8% interest compounded quarterly, how much will he have to deposit as principal to have enough money in 2 years to buy the bike?

Solution

In 2 years, Dirk wants to buy a bicycle that costs 1, 000.00. If he opens a savings account that earns 8% interest compounded quarterly, how much will he have to deposit as principal to have enough money in 2 years to buy the bike?

Solution

Principal : 853.49

Solution steps

Translate the problem into an equation:

1000 = P (1 + \frac{0.08}{4})^{4 \cdot 2}

Solve for

P, 1000 = P (1 + \frac{0.08}{4})^{4 \cdot 2} : P = 853.49

Principal : 853.49

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