Question

A company wants to have enough money to purchase a $500,000 piece of land in five years. How much does it have to put into a 4% interest account annually to buy the land?

In order to have money for their son's college education, a young couple started a savings plan into which they made a deposit of $2,000. The amount they had in the account in year ten if they earned interest at 12% per year was nearest to:

Answer 1

A company wants to have enough money to purchase a $500,000 piece of land in five years.

So we are given Amount (A) = $500,000

Rate of interest (r) = 4%

Time (t) = 5 years

Since the interest is earned annually so it will be added to the principal every year. So here we need to use Compound interest formulae.

P = A/(1+r)^t or P = 500,000/(1+0.04)^5 =500,000/1.22 = $409,836

In order to have money for their son's college education, a young couple started a savings plan into which they made a deposit of $2,000.

Given, P = $2,000, r= 12% per year, t = 10

Hence, A = P(1+r)^t

A = 2000(1+0.12)^10 =2000(1.12)10 =2000×3.1 = $6200