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Compound Interest and Investments for Europe Trip

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Julie needs to pay a \$5,000 tuition bill nine months from now. She has some money saved up that she could invest, but she is also considering a trip to Europe. She remembers reading something about how money grows over time, and she wonders if maybe she should just go ahead and invest some money today to pay the tuition bill.
a. How much would Julie invest today to have \$5,000 nine months from now if she can invest at a 10% annual rate? Use the simple interest approximation formula.
b. Assuming Julie goes to Europe and waits six months to do her investing, how much would she need to invest then, again assuming a 10% annual rate and using the simple interest formula?
c. Redo a and b using the daily compound interest formula interest formula, and compare your results to the simple interest results.

Solution Preview

Julie needs to pay a \$5,000 tuition bill nine months from now. She has some money saved up that she could invest, but she is also considering a trip to Europe. She remembers reading something about how money grows over time, and she wonders if maybe she should just go ahead and invest some money today to pay ...

Solution Summary

This solution is comprised of a detailed explanation to answer how much would Julie invest today to have \$5,000 nine months from now if she can invest at a 10% annual rate.

\$2.19