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    Compound Interest

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    You need $28,974 at the end of 10 years and your only investment option is an 8% long-term certificate of deposit (compounded annually). With the certificate of deposit, you make an initial investment at the beginning of the first year.

    A) What single payment could be made at the beginning of the first year to achieve this objective?
    B) What amount could you pay at the end of each year annually for 10 years to achieve this same objective?
    I don't understand the formula for working this out. Could you help?

    © BrainMass Inc. brainmass.com March 4, 2021, 8:14 pm ad1c9bdddf

    Solution Preview


    Part A:
    Standard interest compounding formula:
    FV = PV*(1+r)^t
    which is the same as:
    PV = FV/(1+r)^t
    PV ...

    Solution Summary

    A calculation of compound interest.