Question

Jazelle Momba wants to visit her family in zimbabwe in 2025, which is 6 years from now. She knows that it will cost approximately 8,900 including flight costs, on the ground cost and extra spending money to stay for 4 months. If she opens an account that compound interest at 6/ semianually, how much does she need to deposit today to cover the total cost of her visit

Answer 1

Now we need to use the compound interest formula

A = P(1+(r/n))^nt

Here we need to find the present value

Here A = maturity value = $8900

Present value P = $?

Rate of interest r = 6% = 6/100 = 0.06

T is number of years = 6 years

compounding frequency semi annually so n = 2

8900 = P(1 + (0.06/2))⁶⁽²⁾

8900 = P(1+0.03)¹²

8900 = P(1.03)¹²

8900 = P(1.42576)

P = 8900 / 1.42576

P = 6242.2848 ~ 6242.3

So Momba need to invest $6242.3 to visit her family in the year 2025.