Answer:
You will have $5,792 in your account by your high school graduation
Explanation:
Simple Interest
Interest calculated on the original principal only of a loan or on the balance of an account.
Unlike compound interest where the interest earned in the compounding periods is added to the new principal, simple interest only considers the principal to calculate the interest.
The interest earned is calculated as follows:
I=P.r.t
Where:
I = Interest
P = initial principal balance
r = interest rate
t = time
The parents invested P = $5,000 in CD account that pays r=0.88% annual interest rate. The rate must be converted to decimal, thus r=0.88/100 =0.0088.
We are required to calculate the total money in the account after t=18 years.
First, we calculate the interest:
I = $5,000 * 0.0088 * 18
I = $792
Adding interest to the principal, we have the future balance in the account:
A = $5,000 + $792 = $5,792
You will have $5,792 in your account by your high school graduation