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Question 551348: what sum of money should be invested now to provide $2000 at the end of 10 years, assuming the interest at the rate of 8 per cent per annum for the first six years and 10 per cent per annum for therafter?
Answer by lwsshak3(11628)   (Show Source):
You can put this solution on YOUR website! what sum of money should be invested now to provide $2000 at the end of 10 years, assuming the interest at the rate of 8 per cent per annum for the first six years and 10 per cent per annum for therafter?
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using compound interest formula: A=P(1+r)^t, P=initial investment, r=interest rate/period,
t=number of periods, A=amount after t periods
..
For the first 6 years at 8% per year interest:
A=P(1+.08)^6=P(1.08)^6≈1.587P
Amt earned after 6 years at 8% interest≈1.587P
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For the next 4 years at 10% per year interest:(note: initial investment is 1.587P)
A=1.587P(1+.10)^4=(1.587P)(1.1)^4≈2.324P
Amt earned after 4 years at 10% interest≈2.324P
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2.324P=2000
P=2000/2.324
P≈860.59
ans:
About $861 should be invested now at given interest rates and periods to provide $2000 at the end of 10 years
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