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In 2 years, Martin wants to buy a bicycle that costs 700.00. If he opens a savings account that earns 13% 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 : 540.49

Solution steps

Translate the problem into an equation:

700 = P (1 + \frac{0.13}{12})^{12 \cdot 2}

Solve for

P, 700 = P (1 + \frac{0.13}{12})^{12 \cdot 2} : P = 540.49

Principal : 540.49

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