You want to invest money for your child's education in a certificate of deposit (CD). You want it to be worth $12,000 in 10 years. How much should you invest if the CD pays interest at a 9\% annual rate compounded a) Annually? b) Continuously?

Dottie Parra

Dottie Parra

Answered question

2021-05-17

You want to invest money for your child's education in a certificate of deposit (CD). You want it to be worth $12,000 in 10 years. How much should you invest if the CD pays interest at a 9% annual rate compounded
a) Annually?
b) Continuously?

Answer & Explanation

comentezq

comentezq

Skilled2021-05-18Added 106 answers

Step 1 
First we write the formula A=Final amount P=principal amount r=rate of interest (in decimals) 
n=number of times principal amount compounded in a year and t= period of investment 
A=P(1+rn)nt 
Step 2 
Now we put the values A=$1200, 
r=9%=0.09, n=1 and t=10 years 
12000=P(1+0.091)1×10 
12000=P(1.09)10 
12000=P×2.37 
P=120002.37=$5063.29 
Step 3 
Answer: $5063.29 to be invested to get the final amount $12000 after 10 years compounded annually.

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