+41 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?
+129852 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
