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.

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