Problema Solution
Cindy will require $13,000 in 3 years to return to college to get an MBA degree. How much money should she ask her parents for now so that, if she invests it at 9% compounded continuously , she will have enough for school? (round answer to nearest dollar)
Answer provided by our tutors
We use the following formula to calculate the total amount of money, 't', accrued over 'y' years when compounded continuously, based on a rate 'r' and a principal investment 'p':
t = p(e)^(ry)
'e' is the exponential constant, approximated by 2.718
For our problem:
t = 13000, the total amount Cindy must accrue
p is the unknown, the amount of money Cindy will need to borrow from her parents
r = 0.09, the compounded interest rate
y =3, the number of years the investment will accrue interest
13000 = p(e)^(0.09*3)
p = 13000/(e)^(0.09*3) = 9923.933
Cindy will have to ask her parents for approximately $9,924