In: Finance
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 |
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)