A bank offers a CD that pays a simple interest rate of 5.5%. How much must you put in this cd now in order to have $8000 for a kitchen remodeling project in two years?
Explanation: The formula to find the amount that involves simple interest is: A = P(1+rt) --- (1) Where A = Amount = $8000 P = Principal amount = ? r = Annual interest rate in decimal form = 5.5% = 0.055 t = Loan period expressed in years = 2
Plug in the values in equation (1) (1) => (8000) = P*(1 + 0.055*2) P = 8000/1.11 = $7207.207 (answer)
