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Supose you found a CD that pays 2.5% interest compounded monthly for 5 years. 

If you deposit $8000 now, how much will you have in the account in 5 years? 

 

What amount of interest will be earned? 

 

Now suppose that you would like to have $20000 in the account in 5 years. How much would you need to deposit now? 

 Apr 23, 2022
 #1
avatar+124598 
+1

First one

 

We have

 

P  (1 + r/12)^(5 * 12)

 

P = 8000        r = .025       and  5 * 12  =  60   =  the number of compounding periods

 

8000 ( 1 + .025 / 12) ^( 60)     ≈  $9064

 

Interest earned =    9064  - 8000  =  $1064

 

Second one   (assuming the same  coditions as above )

 

20000  =   P  (1 + .025 /12) ^(60)

 

P  =   20000 / ( 1 + .025 / 12)^60   ≈  $17652.23

 

 

cool cool cool

 Apr 23, 2022

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