TheRob wrote:
Sorry i posted a rate problem with the wrong title
Here you have the real problem of comound interest, I kind of have the idea but I don not know how to apply the formula
Donald plans to invest x dollars in a savings account that pays interest at an annual rate of 8% compounded quarterly. Approximately what amount is the minimum that Donald will need to invest to earn over $100 in interest within 6 months?
$1500
$1750
$2000
$2500
$3000
Compound interest formula
A = P ( 1+r/n)power nt
given, n= 4 (quaterly);r =.08
the approach is substitution,
our interest requirement is 100$ after 6 months, 2 compounding period. interest per compounding period is 2%
lets take 1500, after 3 months interest accumulated is 30$, total amount is 1530
after 6 months, interest is 30.6$ and total is 1560.6$, so not 1500
1500 & 1750 have a difference of 250$ only , but the expected interest different is around 40$ hence you can straightaway rule out 1750
2000 is again can be ruled out as approx 4% interest yeilds only 80$
2500$ is a good bet, first 3 months it earns 50$ as interest, next 3 months it will earn 51$ as interest.
hence answer is D