Question

Determine the present value P that must be invested to have the future value A at simple interest rate r after time t. A= $5000, r= 10%, t = 5 years (Round up to the nearest cent.)

Answer 1

the simple interest rate :

interest = I = P r * t

A = P + I

So,

A = 5000 , r = 10% = 0.1 and t = 5 years

so,

A = P + I = P + P * r * t = P ( 1 + r * t)

5000 = P * ( 1 + 0.1 * 5) = P * 1.5

P = 5000/1.5 = 3,333.33 ( To the nearest cent)