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Tony Peyton, age 20, would like to have $1,000,000 by the time he is 65 years of age. If Tony could earn 6.9% annual interest compounded monthly, how much must he invest now to have $1,000,000 by the time he is 65?

Respuesta :

Using compound interest, it is found that he must invest $45,225 now.

Compound interest:

[tex]A(t) = P\left(1 + \frac{r}{n}\right)^{nt}[/tex]

  • A(t) is the amount of money after t years.  
  • P is the principal(the initial sum of money).  
  • r is the interest rate(as a decimal value).  
  • n is the number of times that interest is compounded per year.  
  • t is the time in years for which the money is invested or borrowed.

In this problem:

  • He wants to have $1,000,000 in 65 - 20 = 45 years, hence [tex]t = 45, A(t) = 1000000[/tex].
  • 6.9% annual interest, hence [tex]r = 0.069[/tex].
  • Compounded monthly, hence [tex]n = 12[/tex].

Then:

[tex]A(t) = P\left(1 + \frac{r}{n}\right)^{nt}[/tex]

[tex]1000000 = P\left(1 + \frac{0.069}{12}\right)^{12(45)}[/tex]

[tex]P = \frac{1000000}{(1.00575)^{540}}[/tex]

[tex]P = 45225[/tex]

He must invest $45,225 now.

To learn more about compound interest, you can take a look at https://brainly.com/question/25781328

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