Question

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? Could you please show work?,

Answer 1

The CD pays interest at 5.5%, presumably compounded annually at the end of each year. So over the two years, the principal balance will have grown by a factor of 1.055*1.055 = 1.113. Therefore, in order to have $8000 at the end of that time, one would need to start with 8000/1.113 = $7187.60.