The equation, [tex]A = P \left(1 + \frac{0.039}{12}\right)^{128}[/tex], represents the amount of money earned on a compound interest savings account with an annual interest rate of 3.9% compounded monthly. If after 20 years the amount in the account is \[tex]$14,326.68, what is the value of the principal investment? Round the answer to the nearest hundredth place.

A. \$[/tex]6,575.75
B. \[tex]$7,556.27
C. \$[/tex]7,750.93
D. \$13,427.07



Answer :

To find the principal investment [tex]\( P \)[/tex] from the given information, we need to rearrange the compound interest formula and solve for [tex]\( P \)[/tex]. The given formula is:

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

where:
- [tex]\( A \)[/tex] is the final amount, which is $14,326.68.
- [tex]\( r \)[/tex] is the annual interest rate, which is 0.039 (3.9%).
- [tex]\( n \)[/tex] is the number of compounding periods per year, which is 12.
- [tex]\( t \)[/tex] is the number of years, which is 20.

First, let's determine the interest rate per compounding period and the number of compounding periods over the entire timeframe:

1. The interest rate per period:
[tex]\[ \frac{r}{n} = \frac{0.039}{12} \][/tex]

2. The number of compounding periods:
[tex]\[ nt = 12 \times 20 = 240 \][/tex]

We can now replace these values in the formula to isolate [tex]\( P \)[/tex]:

[tex]\[ P = \frac{A}{\left(1 + \frac{0.039}{12}\right)^{240}} \][/tex]

Next, we calculate the expression in the denominator:

1. Calculate [tex]\( \frac{0.039}{12} \)[/tex]:
[tex]\[ \frac{0.039}{12} = 0.00325 \][/tex]

2. Add 1 to the result:
[tex]\[ 1 + 0.00325 = 1.00325 \][/tex]

3. Raise the sum to the power of 240:
[tex]\[ 1.00325^{240} \][/tex]

Finally, divide [tex]\( A \)[/tex] by this result to find the principal [tex]\( P \)[/tex]:

[tex]\[ P = \frac{14,326.68}{1.00325^{240}} \][/tex]

When you perform the above calculation, you find that:

[tex]\[ P \approx 6,575.75 \][/tex]

Therefore, the value of the principal investment, rounded to the nearest hundredths place, is [tex]\( \boxed{6,575.75} \)[/tex]. This matches the first answer option given.