Question

Amy invested $5,600 in a CD that pays eight percent compounded quarterly. How many years will it take before the CD is worth 8,228.24

Answer 1

Answer:

It will take 4.858 years before the CD worth 8228.24

Step-by-step explanation:

* Lets revise the compound interest

- The formula for compound interest, including principal sum, is:

  A = P (1 + r/n)^(nt)

- Where:

• A = the future value of the investment/loan, including interest

• P = the principal investment amount (the initial deposit or loan amount)

• r = the annual interest rate (decimal)

• n = the number of times that interest is compounded per unit t

• t = the time the money is invested or borrowed for

- To find the time you can use the formula

  t = ln(A/P) / n[ln(1 + r/n)]

* Lets solve the problem

∵ P = $5600

∵ A = 8228.24

∵ r = 8/100 = 0.08

∵ n = 4

- Substitute all of these values in the equation of t

∴ t = ln(8228.24/5600) / 4[ln(1 + 0.08/4)] = 4.858 years

* It will take 4.858 years before the CD worth 8228.24