Question

Q3. How much money must be put into a bank account yielding 2.50% (compounded
annually) in order to have $1,875 at the end of 13 years? Round to two decimal
places.

Q4. Yolanda deposited $8,000 in a bank account, and 9 years later she closes out the
account, which is worth $16,000. What annual rate of interest has she earned over the
9 years? Submit your answer as a percentage and round to two decimal places.

Answer 1

HI

We will use compounded interest formula for both Q3 and Q4

Future Value F = PresentValue*(1+r)^t

Q3) interest rate r = 2.5%

time t = 13 years

F = $1,875

Present Value P =?

So, using formula

1875 = P*(1+2.5%)^13

P = 1875/(1.025)^13

P = $1,360.16

Hence you have to put $1,360.16 today.

Q4. Here P = $8000

time t = 9 years

F = $16,000

interest rate r = ?

using formula

16000=8000*(1+r)^9

2=(1+r)^9

1+r= 2^(1/9)

1+r= 1.08006

r= 8.01%

hence annual rate of interest = 8.01%

Thanks