Determine the present value P you must invest to have the future value A at simple interest rate r after time t.

Question

Determine the present value P you must invest to have the future value A at simple interest rate r after time t.
A = $8000.00
r = 10.0%
t = 6 months

Answer 1

Simple interest:  I = prt

Future amount A = p + I = p + prt

 

r = 10% = 0.1

t = 6 months = 0.5 years

A = future amount = 8000

 

8000 = p + p(.1)(.5)

8000 = 1.05p

 

p = 8000/1.05 = $7,619.05

 

Check:  I = 7619.05(.1)(.5) = 380.95

                 7619.05 + 380.95 = $8,000

Answer 2

A = Prt

 

A / (rt) = P