In 3 years, Dustin wants to buy a bicycle that costs 1, 000.00. If he opens a savings account that earns 10% interest compounded monthly, how much will he have to deposit as principal to have enough money in 3 years to buy the bike?

Solution

Solution

Principal : 741.74

Solution steps

Translate the problem into an equation:

1000 = P (1 + \frac{0.1}{12})^{12 \cdot 3}

Solve for

P, 1000 = P (1 + \frac{0.1}{12})^{12 \cdot 3} : P = 741.74

Principal : 741.74

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