Your money at Riverzxzxz Bank today is worth two million dollars. If you deposited this 5 years ago at 3% computed semiannually, what is the original principal?Show complete solution and cheking

1 Answer

embizze's profile pic

embizze | High School Teacher | (Level 2) Educator Emeritus

Posted on

The formula for figuring compound interest is `A=P(1+r/t)^(nt)` where A is the amount at a given time, P is the principal (the amount initially invested), r is the rate, n is the number of times compounded per year, and t is the time in years.

Substituting the known values, we solve for P:





Thus the original deposit was $1,723,334.46


** An alternative approach is to use the formula for present value:

`PV=(FV)/(1+r)^n` where PV is the present value, FV is the future value, r is the interest rate and n is the number of time periods.

Here the future value is 2,000,000, and we seek the present value.

`PV=(2,000,000)/(1+(.03)/2)^10~~1,723,334.46` as before.