Question

Kyle has ​$900 in cash received for high school graduation gifts from various relatives. He wants to invest it in a certificate of deposit​ (CD) so that he will have a down payment on a car when he graduates from college in five years. His bank will pay 4​% per​ year, compounded​ annually, for the​ five-year CD. How much will Kyle have in five years to put down on his​ car?

In five years, the amount Kyle will have to put down in his car is $__

Answer 1

Given that Kyle has received 900$ in cash as a gift and Kyle wants to invest that money in CD with 4% compound interest which is being compounded annually.

That means interest rate = 4% =
`(4)/(100) = 0.04` in decimals.

Since interest is compounded annually, we have to use compound interest formula.

That is amount after time t is
`A= P(1+(r)/(n)) ^(nt)`

Where P- initial amount = 900

r= rate of interest in decimals = 0.04

n= number of times interest is compounded per year = 1

t= number of years the money is invested = 5

Hence A =
`900(1+(0.04)/(1) )^(1*5)  = 900(1.04)^(5)`

= $1094.9876

So, at the end of five year period, Kyle will have 1094.9876$ to put down in his car.