Math

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(COMPOUND INTEREST)

Effie is planning to set up a trust fund for her new grand daughter. In 18 years time she wants the investment to be worth $50000 to help her buy a car or a home unit.
a)How much should she invest at 5% p.a. compounding yearly?
--I know the answer for this is $20776.03

b) How much less will she have to invest at 6% p.a., compounding monthly?
This is the question I need help with...

Does anyone know the working out and answer? thank you

  • Math -

    let her present investment be P

    P(1.05)^18 = 50000
    P = 50000/(1.05)^18 = 20776.03

    for the 2nd part,
    monthly rate = .06/12 = .005, but the exponent = 12x18 = 216

    P = 50000/1.005^216 = 17025.53

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