You find a mutual fund that offers approximately 7% APR compounded monthly. You will invest enough each month so that you will have $1000 at the end of the year. How much money will you have invested in total after 1 year?
Business · Middle School · Tue Nov 03 2020
Answered on
Given:
Expected Future Value (A) = $1000
Rate ( r ) = 7% or 0.07
Time(t) = 1 year
Compounded Monthly (n = 12)
Determine how much money must be invested (P).
The formula for Compound Interest:
A = P ( 1 + r/n)^nt
Solution:
Substitute the given values to the formula for compound interest.
$1000 = P ( 1 + 0.07/12)^12(1)
$1000 = P ( 1 + 0.07/12)^12
$1000 = P (1.072290081)
Divide both sides by 1.072290081 in order to get the value of p.
$1000/1.072290081 = P(1.072290081)1.072290081
P = $932.58
Final answer:
You need to invest $932.58.