Question

The lump-sum amount of money that Khalid should have deposited 5 years ago in a saving account, which earns 3.25% per year in order to accumulate SR 500,000, now, is closest to:

A. SR 426,000
B.SR 419,000
C.SR 410,000
D.SR 472,000

Answer 1

Amount accumulated in 5 years = SR 500,000

Interest rate = 3.25% or 0.0325

Time period = 5 years

Calculate the lump sum to be deposited 5 years ago -

Amount deposited = Amount accumulated in 5 years/(1 + interest rate)time period

Amount deposited = 500,000/(1 + 0.0325)5

Amount deposited = 500,000/(1.0325)5

Amount deposited = 500,000/1.1734

Amount deposited = 426,112.15

Thus,

The lump sum amount that Khalid should have deposited five years ago is closest to SR 426,000.

Hence, the correct answer is the option (A).