If I make an investment that increases by 6% every year and I need $60000 after 12 years for my college, how much should I invest now?

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justaguide's profile pic

justaguide | College Teacher | (Level 2) Distinguished Educator

Posted on

An amount equal to $60,000 is required after 12 years. The rate of return on an investment made now is 6% per annum. Use the formula `A = P*(1+r)^t` where P is the initial investment, r is the rate of return and A is the amount that P increases to after t years.

Here, r = 0.06, t = 12 and A = 60000. The value of P has to be determined.

`60000 = P*(1.06)^12`

=> `P = 60000/(1.06)^12`

=> P = 29818.16

The amount that should be invested now is $29818.16

rachellopez's profile pic

rachellopez | Student, Grade 12 | (Level 1) Valedictorian

Posted on

You need to use the compound interest formula which is A=P(1+r)^nt.

P is the principle (what your a solving for), r is the rate, n is the number of compounds, and t is time. The number of compounds per year would be 1 so you could leave that out.

$60,000=P(1+.06)^12

$60,000=P(1.06)^12

$60,000=P(2.01)

$29,850.75=P

Your principle should be about $29,850.75

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