Question

Two years ago, Kuley invested $20,900. She has earned and will earn compound interest of 7.8 percent per year. In 3 years from today, Nabax can make an investment and earn simple interest of 5.3 percent per year. If Nabax wants to have as much in 7 years from today as Kuley will have in 7 years from today, then how much should Nabax invest in 3 years from today

Answer 1

$73306.46

Step-by-step explanation:

Compound interest = Principal(1+rate/n)^nt

If Kuley invested $20900 and compound interest rate of 7.8% per year for 7 years then,

Compound interest in 7 years =$20900(1+7.8/12)^12×7

=$20900×1.7233= $36016.97

After 3 years, Nabax would have 4 years left to make what kuley made in 7 years

Kuley made compound interest of $36016.97-$20900= $15116.97

Nabax will invest for 4 years at simple interest rate of 5.3%

Simple interest = principal×time×rate/100

We substitute to get his needed amount(principal)

$15116.97=Principal×4×5.3/100

$15116.97= 21.2Principal/100

Cross multiply to make principal subject of the formula:

Principal= 1511697/21.2

Principal = $73306.46

Therefore Nabax needs to invest $73306.46 to get the same amount of return that kuley got in 7 years