SOLUTION: A bank offers a CD that pays a simple interest rate of 2.5%. How much must you put in this CD now in order to have $4,000 for a home-entertainment center in 4 years.
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Question 1176675: A bank offers a CD that pays a simple interest rate of 2.5%. How much must you put in this CD now in order to have $4,000 for a home-entertainment center in 4 years.
The present value that must be invested to get $4,000 after 4 years at an interest rate of 2.5% is $__.(Round up to the nearest cent.)
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
simple interest is 2.5% per year.
the simple interest formula is:
f = p + p * r * t.
f is the future value
i is the interest
p is th principal
r is the interest rate per time period.
t is the number of time periods.
in that formula:
f = 4000
p = what you want find.
r is equal to 2.5% per year = .025 per year.
t is equal to 4 years.
the formula becomes:
4000 = p + p * .025 * 4
factor out the p to get:
4000 = p * (1 + .025 * 4)
simplify to get:
4000 = p * 1.10
solve for p to get :
p = 4000 / 1.10 = 3636.363636.....
in fraction form, p = 3636 + 4/11.
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