Compounding/Investment Question

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  • Thread starter Thread starter eleventhxhour
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SUMMARY

Bob needs to determine how much to invest today to accumulate $10,000 in five years using a Guaranteed Investment Certificate (GIC) that offers a 6% interest rate compounded daily. The compound interest formula, \(A = P \left(1 + \frac{r}{n}\right)^{nt}\), is essential for this calculation. In this scenario, \(A\) is $10,000, \(r\) is 0.06, \(n\) is 365, and \(t\) is 5 years. By rearranging the formula to solve for \(P\), Bob can find the initial investment required.

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Bob wants to throw a party when he graduates from high school in five years. He needs $10000. He can invest in a GIC which pays 6% compounded daily. How much must he invest today?
 
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eleventhxhour said:
Bob wants to throw a party when he graduates from high school in five years. He needs $10000. He can invest in a GIC which pays 6% compounded daily. How much must he invest today?

Let's start with the formula for compound interest: $$A=P \left(1+\frac{r}{n} \right)^{nt}$$, where $A$ is the new total amount after calculating interest, $P$ is the amount of money you start with, $r$ is the percent interest (in decimal form), $n$ is the number of times the interest is calculated per year and finally $t$ is the number of years.

Let's start this way. We have all the variables in the equation except for one. What are we missing?
 

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