A student wants to save $8000 for college in five years. How much should initially be put into an account that earns 5.2% annual interest compounded monthly?
compounds 12 times a year so r=0.052/12 n= 12*5=60 FV=8000
$$\\8000=PV(1+0.052/12)^{60}\\\\
\frac{8000}{(1+0.052/12)^{60}}=PV\\\\$$
Using... An = A(1 + r/n)^(t*n) where An is the final amount accumulated, A is the original amount invested, r is the annual interest rate, n is the number of compoundings in a year, and t is the number of years, we have
8000 = A(1 +.052/12)^(5*12) where A is the amount that we're looking for
Divide both sides by (1 +.052/12)^(5*12)
8000 / (1 +.052/12)^(5*12) = A = about $6171.88