Question

A bank offers a CD that pays a simple interest rate of 6.5%. How much must you put in this CD now in order to have $3500 for a home-entertainment center in 4years.The present value that must be invested to get $3500 after 4 years at an interest rate of 6.5% is $. (Round up to the nearest cent.)

Answer 1

SOLUTION

Given the question in the image, the following are the solution steps to answer the question.

STEP 1: List the steps to calculate the answer

Simple Interest Rate formula:

$P(1+rt)$

First, always look for what you are asked to find. Here it is how much you must put into a CD. Therefore, P will be the variable you solve for.

2. $3500 represents the output that you want. Anytime you are given a number that is an output, you can assume it is what the formula will equal. So replace A with 3500.

3.You must convert the percent into a decimal. To do this, move the decimal to the left two times. Replace r with 0.065

t represents time. You can replace t with 4.

STEP 2: Calculate the answer

By substitution, the equation becomes,

$\begin{gathered} 3500=P(1+0.065(4)) \\ 3500=P(1.26) \\ P=\frac{3500}{1.26}=\text{ \ }2777.77777778 \\ \\ P\approx\text{ \ }2777.78 \end{gathered}$

Hence, The present value that must be invested to get $3500 after 4 years at an interest rate of 6.5% is approximately $2777.78