Question

Determine the present value P that must be invested to have the future value A at simple interest rate r after time t.A = $6000, r = 13%, t = 2 years.I'm having trouble with this question. Can I have some help? I just need like... a step by step on how to solve this question, that's all, i guess. Oh, and the answer would be helpful too!! Math isn't my strong suit, so yeah!! *Sheepish laugh*

Answer 1

To answer this we must use the simple interest formula

$A=P(1+rt)$

A is the future amount after interest

P is the initial amount you invest

r is the annual interest rate and

t is the amount of years

Remember that 13% means 13 out of 100, or 13/100=0.13

Let's replace values in formula to find P

$\begin{gathered} A=P(1+rt) \\ P=\frac{A}{(1+rt)}\text{ We left P alone} \\ \\ P=\frac{6000}{(1+0.13(2))}=\frac{6000}{1+0.26}=\frac{6000}{1.26}=4761.9 \end{gathered}$

So, the initial value has to be 4761.9