Financial Formula

Question

A CD is advertised for 2.09 % for 30 months. If you ' d like to have $10, 000 at the end of 30 - months
how much should you initially invest in the account?

Answer 1

This appears to be a simple interest problem, as no compounding periods were noted.

 

Further, 30 months is simply 2.5 years.

 

   To get the PV, take the FV/(1+i)ⁿ

 

     PV = 10,000/(1.0209)^2.5

 

   PV = 10,000/1.053071864

 

     PV = $9,496.03

 

 

    So, the investor must put aside $9,496.03 now, in order to have $10,000 in 2.5 years, at that return.

 

     To test this:  $9,496.03 * (1.0209)^2.5 = $10,000    [Checks Out]