Homework SourseThe international monetary fonder is trying to raise 500 bil
The international monetary fonder is trying to raise $500 billion in five years for new funds to lend to developing countries. At 6% interest compounded quarterly, how much must it invest today to reach $500 billion in five years?
The international monetary fonder is trying to raise $500 billion in five years for new funds to lend to developing countries. At 6% interest compounded quarterly, how much must it invest today to reach $500 billion in five years?
Solution
Compound interest formula:
A + P(1 + r/100)nt,
where
A = amount of money accumulated after n years
P = Principal amount
r = annual rate of interest
n = number of times the interest is compounded per year
t = number of years.
Here:
A = $ 500 billion
P = to be found
r = 6
n = 4
t = 5
So, we get:
P(1 + 6/100)20 = 500 billion
i.e.,
P (3.2071) = 500 billion
So, P = 500 bilion/3.2071
= 155.9041 billion
