Answer:
See below
Explanation:
The formula in reference is a re-arrangement of the compound interest rate formula. The compound rate formula is used to calculate the future balance of a compound interest-earning account.
This particular formula is worked backward to calculate how much investment is needed to achieve a set goal.
For example, you desire to have $5000 in your account after six years. The bank pays an interest rate of 5%, how much must you save today to achieve your target?
Today amount will be the PV
FV = $5000
r=5%
n= 6years
PV = $5000/(1+5/100)6
PV=$5000/(1+0.05)6
pv = 5000/1.340095
pv=3,731.10
Meaning $3.731.10 will grow to $5000 after six years when invested in an account earning 5% compound interest.
