Question

In: Finance

1. You are going to deposit $850 in a bank CD today, and you will withdraw...

1. You are going to deposit $850 in a bank CD today, and you will withdraw the money only once the balance is $1,000. If the bank pays 9 percent interest, how long will it take for the balance to reach $1,000? (If you solve this problem with algebra round intermediate calculations to 4 decimal places, in all cases round your final answer to 1 decimal place, e.g. 5.4.)

Balance will reach $1,000 in    years

Solutions

Expert Solution

We use the formula:  
A=P(1+r/100)^n
where   
A=future value
P=present value  
r=rate of interest
n=time period.

1000=850*(1.09)^n

(1000/850)=(1.09)^n

1.1765=(1.09)^n

Taking log on both sides;

log 1.1765=n*log 1.09

n=log 1.1765/log 1.09

=1.9 years(Approx)


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