Question

You need $368 in 10 months for your auto insurance bill. If your investments earn 2% APR (compounded monthly), how much do you have to invest today such that your investment will grow to just cover your auto insurance bill?

Answer 1

Given

Required Amount after 10 Months = $ 368

Interest rate = 2% APR Compounded Monthly

We know that Future Value = Present Value ( 1+i/12)^12n When interest is compounded monthly

Here I = Rate of interest

n = No.of Years

Time period = 10 Months or (10/12) Years

Future Value = Present Value ( 1+i/12)^12n

$ 368 = Present Value ( 1+0.02/12)^12*10/12

$ 368 = Present Value ( 1+0.001667)^10

$ 368 = Present Value ( 1.001667)^10

$ 368 = Present Value ( 1.016796)

$ 368/1.016796 = Present Value

$ 361.9212 = Present Value

Hence the Amount to be invested today is $ 361.9212

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