Question

Determine the present value P you must invest to have the future value A at simple interest rate r after time t. A $9000.00, r 10.0%, t 3 months (Round up to the nearest cent.)

Answer 1

P = $6923

Explanation:

The simple interest formula is given by

1) I = principal *interest rate * time period

where I is the interest

The amount due after the time period is given by:

2) T = principal + I

After three months, you have $9.000, so T = 9000. The present value P is the principal. We have that:

9000 = P + I

I = 9000 - P

In our problem, we have that the time period is 3 months and out interest rate is 10%.

Replacing in 1)

9000 - P = P*0,1*3

9000 = 0.3P + P

1.3P = 9000

P = $6923

So the present value P is $6923