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In 2 years, Cara wants to buy a bicycle that costs 400.00. If she opens a savings account that earns 12% interest compounded quarterly, how much will she have to deposit as principal to have enough money in 2 years to buy the bike?

Solution

Solution

Principal : 315.76

Solution steps

Translate the problem into an equation:

400 = P (1 + \frac{0.12}{4})^{4 \cdot 2}

Solve for

P, 400 = P (1 + \frac{0.12}{4})^{4 \cdot 2} : P = 315.76

Principal : 315.76

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