A bank offers a CD that pays a simple interest rate of 1.5%. How much must you put in this CD now in order to have $2000 for a graduation trip in 2 years?
To calculate how much you need to put in the CD now, you can use the formula for calculating simple interest:
Simple Interest = Principal x Rate x Time
Given:
Principal (amount you need to put in CD now) = ?
Rate = 1.5% = 0.015
Time = 2 years
Amount at the end of 2 years = $2000
We want to find the Principal, so we can rearrange the formula to solve for Principal:
Principal = Amount / (1 + Rate x Time)
Substitute the values into the formula:
Principal = $2000 / (1 + 0.015 x 2)
Principal = $2000 / (1 + 0.03)
Principal = $2000 / 1.03
Principal = $1,941.75
Therefore, you would need to put $1,941.75 into the CD now in order to have $2000 for a graduation trip in 2 years.