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Suppose you found a CD that pays 2.1% interest compounded monthly for 6 years. If you deposit $12,000 now, how much will you have in the account in 6 years? (Rounded to the nearest cent.) What was the interest earned? Now suppose that you would like to have $20,000 in the account in 6 years. How much would you need to deposit now?

User Quicker
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1 Answer

12 votes
12 votes

The interest earned is the difference between the initial amount that was deposited in the bank and the amount that is in the account after six years.


\begin{gathered} A\text{ = 12000\lparen1+}(2.1\%)/(12))^(6*12) \\ This\text{ is from the compound interest formula.} \\ A\text{ = 13609.89} \end{gathered}

Amount in the account: $13609.89

The interest earned is therefore: 13609.89 - 12000 = $1609.89


\begin{gathered} 20000\text{ = P\lparen1+}(2.1\%)/(12))^6*12 \\ 17634.24\text{ = P} \end{gathered}

To earn $20000 in six years he should invest $17634.24.

User Alberthoven
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