Question

A bank offers a CD that pays a simple interest rate of 2.5%. How much must you put in this CD now in order to have $4,000 for a home-entertainmentcenter in 2 years.

Answer 1

The formula to calculate Simple Interest is given as

`I=\frac{\text{PRT}}{100}`

The question provides the following parameters:

`\begin{gathered} R=2.5 \\ T=2 \end{gathered}`

If the amount to be had now is $4000, which is inclusive of the interest to be had over the period, this means that

`P+I=4000`

If we substitute the value for I, we have a new equation, such that

`\begin{gathered} P+\frac{\text{PRT}}{100}=4000 \\ \therefore \\ P(1+(RT)/(100))=4000 \end{gathered}`

Substituting the values into the equation, we can solve for P as

`\begin{gathered} P(1+(2.5*2)/(100))=4000_{} \\ P(1+0.05)=4000 \\ 1.05P=4000 \\ P=(4000)/(1.05) \\ P=3809.52 \end{gathered}`

The answer is $3,809.52