a) Gregg just turned 22 and wants to have $10,283 saved in 8 years by his 30th birthday. If he currently has $6,000 in a bond fund, how much interest does he need to make this happen?
b) You have saved $5,000 for a used car. If you invest it in a CD (Certificate of Deposit), earning 5 percent compounded annually, how long would it take to buy a car that costs $7,755?
c) Linda needs $10,000 in 4 years to use as a down payment on a house. She has $6830 to invest today. What amount of interest does she need to earn to make this happen?
a) Gregg just turned 22 and wants to have $10,283 saved in 8 years by his 30th birthday. If he currently has $6,000 in a bond fund, how much interest does he need to make this happen?
Answer
If interest rate is assumed to be compounded annually on Bond
Amount = Principle(1+r/100)^n
10283 = 6000(1+r/100)^8
(1+r/100)^8 = 10283/6000
(1+r/100)^8 = 1.71
r=7%
Hence by hit and trial method rate of interest at the rate of 7% will give the desired result
b) You have saved $5,000 for a used car. If you invest it in a CD (Certificate of Deposit), earning 5 percent compounded annually, how long would it take to buy a car that costs $7,755?
Answer:
Interest rate is assumed to be compounded annually
Amount = Principle(1+r/100)^n
7755 = 5000(1+5/100)^n
(1+5/100)^n = 7755/5000
(1+5/100)^n = 1.55
n=9
Hence by hit and trial method rate of interest at the rate of 5% will give the desired result in 10 years
c) Linda needs $10,000 in 4 years to use as a down payment on a house. She has $6830 to invest today. What amount of interest does she need to earn to make this happen?
Answer:
Interest rate is assumed to be compounded annually
Amount = Principle(1+r/100)^n
10000 = 6830(1+r/100)^4
(1+r/100)^4 = 10000/6830
(1+r/100)^4 = 1.46
r=10%
Hence by hit and trial method rate of interest at the rate of 10% will give the desired result in 4 years
a) Gregg just turned 22 and wants to have $10,283 saved in 8 years by his...
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