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?
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
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.
Your principle should be about $29,850.75