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Compound Interest, SMB-012

Louise's investment earns 3.6% per annum, compounded quarterly.

She calculates that her investment will be worth $7400 in 4 years.

Determine the amount that Louise initially invests, giving your answer to the nearest cent.   (2 marks)

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`$6411.70`

Show Worked Solution

`\text{Interest rate}\ (r) = \frac{0.036}{4} = 0.009\ \ \text{(per quarter)}`

`\text{Compounding periods}\ (n) = 4 xx 4 = 16`

`FV` `=PV(1+r)^n`
`7400` `= PV(1 + 0.009)^(16)`
`:.PV` `= \frac{7400}{1.009^{16}}`
  `= $6411.70\ \ \text{(nearest cent)}`

Filed Under: Compound Interest Tagged With: num-title-ct-coreb, smc-4334-30-Find PV

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