Question

Robert Kelly wants to start a business in 10 years. He hopes to have $100,000 at that time to invest in the business. To reach his goal, he plans to invest a certain amount today in a bank CD that will pay him 9.50 percent annually. How much will he have to invest today to achieve his target? (Round to the nearest dollar.)

Answer 1

$40,351

Step-by-step explanation:

Given that,

Amount of money to invest at that time = $100,000

Annual rate of interest = 9.50%

Time period, n = 10 years

Here, we assume that interest is compounded annually.

Amount = Principal × (1 + Interest rate)^n

$100,000 = Principal × (1 + 0.0950)^(10)

$100,000 = Principal × (1.095)^(10)

$100,000 = Principal × 2.47822761

$100,000 ÷ 2.47822761 = Principal

$40,351.4187 or $40,351 = Principal

Therefore, he have to invest $40,351 today to achieve his target.