If you want to accumulate $500,000 in 20 years, how much do you need to deposit today that pays an interest rate of 15%?

The answer is $125,000. At that deposit and with 15% interest, you get $18,750 annually. You multiply that by 20 years and that gets you $375,000 from interest plus the original $125,000: which gives you the desired amount of $500,000 after 20 years of 15% interest.

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ApusApus ApusApus · Answer 2 · 2019-07-24T19:02:07+02:00

Answer:

$125,000.

Step-by-step explanation:

We are asked to find the principal amount which pays an interest rate of 15% to accumulate $500,000 in 20 years.

We will use simple interest formula to solve our given problem:

[tex]A=P(1+rt)[/tex], where,

A = Amount after t years,

P = Principal amount,

r = Annual interest rate in decimal form,

t = Time in years.

Upon substituting our given values in above formula, we will get:

[tex]\$500,000=P(1+0.15*20)[/tex]

[tex]\$500,000=P(1+3)[/tex]

[tex]\$500,000=P*4[/tex]

[tex]4P=\$500,000[/tex]

[tex]\frac{4P}{4}=\frac{\$500,000}{4}[/tex]

[tex]P=\$125,000[/tex]

Therefore, you should deposit $125,000 to accumulate $500,000 in 20 years.