Chapter 11.II, Problem 17RE

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8th Edition

Robert Brechner + 1 other

ISBN: 9781305585447

Textbook Problem

Solve the following word problems by using Table 11 -2.

Samantha Wimberly is planning a vacation in Europe in 4 years, after graduation. She estimates that she will need $3,500 for the trip.

a. If her bank is offering 4-year certificates of deposit with 8% interest compounded quarterly, how much must Samantha invest now to have the money for the trip?

b. How much compound interest will be earned on the investment?

**(a)**

To determine

**To calculate:** The present value (principal) for an investment with compound amount

Explanation

**Given information:**

An investment with compound amount

**Formula used:**

Compounding period can be defined as the duration or length of time from one interest payment to the next. If an investment made for 4 years at

Here, *m* is the period per year.

The interest rate per period can be calculated by dividing the annual, or nominal, rate by the number of periods per year,

The present value (principal) can be calculated by the formula given below:

In table 11-2, the table factor is the intersection of the rate-per-period column and the number-of-periods row is the present value of

**(b)**

To determine

**To calculate:** The compound interest for an investment with compound amount

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