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 2021-05-17 Answered
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?
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Expert Answer

comentezq
Answered 2021-05-18 Author has 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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