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.

Question

asked Jul 13, 2023 129k views

1 Answer

Chirag Ghori · Answer 1 · 2023-07-19T23:52:44+0000

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

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