Problema Solution
find how much you should invest now at 8% interest, compounded semiannually in order to have $16,500, 2 years from now. Then calculate the amount of interest.
Answer provided by our tutors
we use the following formula for compound interest:
A = p(1 + r/n)^(nt)
p = principal amount
r = annual rate of interest = 0.08
t = number of years = 2
A = accumulated total after t year = 16500
n = number of times the interest is compounded per year = 2 (semi-annual)
we want to solve for 'p', then:
16500 = p(1 + 0.08/2)^(2*2)
solving for 'p' we have p=14104.269
16500 - 14104 = 2396
you should invest approximately $14,104 and you will earn approximately $2,396 in interest