Question

Required information A friend tells you she has saved for seven years and has a present sum of $26,000, which she earned at the rate of 11% per year, compounded annually Determine the equivalent amount she had to start with seven years ago. The equivalent amount she had to start with seven years ago is $

Answer 1

Future value formula

$FV = \frac{PMT}{r} * \left [ (1+r)^{n} - 1 \right ]$

$26,000 = \frac{PMT}{0.11} * \left [ (1+0.11)^{7} - 1 \right ]$

$26,000 *0.11 = PMT * \left [ 2.0761601529 - 1 \right ]$

$PMT = \frac{2,860}{1.0761601529}$

$PMT = \$2,657.5970056994$

This is the equivalent amount she had to start with seven years ago.

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