Compound Interest

Question

This section of word problems are killing me :-( the formula is kind of confusing?

 

 

How much money should you deposit into a certificate of deposit that pays 4% a year compounded continuously to have  $90,000 in the account in 18 years?

Please round the answer to two decimal places.

 

Thanks a million :-)

 

 

 

 

 

Answer 1

The equation needed is A =Pe^(rt)

 

I always remember this by thinking of SHAMPOO

 

Remember PERT shampoo??

 

Moving on...

 

P is your principle invested (That is what we are solving for)

 

A is the amount the account is worth  = 90000

 

t is years = 18

 

So we have,

 

90000 = Pe^(.04*18) = Pe^(.72)

 

To solve for P, all we need to do at this step is to divide 90000 by e^.72

 

90000/(e^.72) = 43807.70304

 

ANSWER: $43807.70