Question

When Madiha was born, her aunt opened a certificate of deposit in her honor to help send her to college someday. now at the age of 18, there is $31,066 in Madiha's account. how much did her aunt originally invest if the interest rate was 6.5%? (round to the nearest dollar)

A.$375
B.$12,500
C.$10,000
D.$8,000

Answer 1

Answer: C.$10,000

Explanation:

Assuming the interest was compounded annually, then we would apply the formula for determining compound interest which is expressed as

A = P(1+r/n)^nt

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

A = $31066

r = 6.5% = 6.5/100 = 0.065

n = 1 because it was compounded once in a year.

t = 18 years

Therefore,

31066 = P(1+ 0.065/1)^1 × 18

31066 = P(1.065)^18

31066 = 3.12P

P = 31066/3.12

P = $9957.1

Approximately $10000 to the nearest dollar