In 2 years, Vijay wants to buy a bicycle that costs 500.00. If he opens a savings account that earns 8% 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 : 426.3

Solution steps

Translate the problem into an equation:

500 = P (1 + \frac{0.08}{12})^{12 \cdot 2}

Solve for

P, 500 = P (1 + \frac{0.08}{12})^{12 \cdot 2} : P = 426.3

Principal : 426.3

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