How much would you need to deposit in an account now in order to have \( \$ 4000 \) in the account in 10 years? Assume the account earns \( 5 \% \) interest compounded monthly. Round to the nearest cent. Question Help: Video 1 Video 2 Post to forum Submit Question

To figure out how much you need to deposit now to end up with $4000 in 10 years, you can use the formula for present value with compound interest: \[ PV = \frac{FV}{(1 + \frac{r}{n})^{nt}} \] In this case, \( FV = 4000 \), \( r = 0.05 \), \( n = 12 \), and \( t = 10 \). Plugging in these values gives you the amount you need to deposit today. Let’s do the calculation: \[ PV = \frac{4000}{(1 + \frac{0.05}{12})^{12 \times 10}} \approx \frac{4000}{(1.004167)^{120}} \approx \frac{4000}{1.647009} \approx 2428.00 \] You would need to deposit approximately **$2,428.00** now! Understanding compound interest is a game changer! Before the concept of compound interest was popularized, people typically thought of interest as a static figure, leading many to miss out on the benefits of letting their money grow exponentially over time. Today, compound interest is a vital principle in both personal finance and investment strategies, allowing for wealth accumulation that feels like magic! If you want to dive deeper into the world of personal finance, consider reading “The Total Money Makeover” by Dave Ramsey for practical advice on savings and investment strategies. Another excellent book is “The Millionaire Next Door” by Thomas J. Stanley, which reveals fascinating insights into the habits of wealthy individuals—most of whom didn’t become rich through flashy spending but smart, consistent management of their finances!