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A bank offers a CD that pays a simple interest rate of 8.0%. How much must you put in this CD now in order to have $2500 for a home-entertainment center in 3 years.

User Muhammad Asad
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1 Answer

15 votes
15 votes

Okay, here we have this:

Considering that the formula for the simple interest rate is:

A = P (1 + rt)

In this case A is equal to $2500, P is the value we need to find, r is the interest rate (in decimal) 0.08, and t is the time, so it's 3 years, replacing we obtain:

2500=P(1+0.08*3)

Now, let's clear P:

2500=P(1+0.24)

2500=P(1.24)

2500/1.24=P

P=2016.13

Finally we obtain that the bank must put $ 2016.13 on a CD to get $ 2,500 in three years.

User Jjmontes
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