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You want to withdraw a single sum amount of $6,000 from an account at the end...

You want to withdraw a single sum amount of $6,000 from an account at the end of 7 years. This withdrawal will zero out the account. What single sum of money deposited today is required if the account earns 6% per year compounded annually

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Answer #1

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

A = Final Amount (principal + interest) = $6000

P = Initial Principal

R= Interest Rate = 0.06

N = No.of times interest compounded in a year = 1

T = No of periods = 7

Applying in the above formula,

6000 = P[1+(0.06/1)]^7*1

6000 = P(1.06)^7

6000 = 1.5036P

Therefore, P = $3990.42 = Single Sum required to be deposited today.

Cross Verification: 3990.42+6%+6%+6%+6%+6%+6%+6% = 6000

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