Shane wants to invest money in a 6% CD that compounds semiannually.Shane would like the account to have a balance of $100,000 four years from now.How much must Shane deposit to accomplish his goal?
A)$88,848.
B)$78,941.
C)$25,336.
D)$22,510.

Question

Quizplus · Accepted Answer

Using the formula for compound interest: 
A = P(1+r/n)^(nt) 
where A is the ending balance, P is the initial balance (what we are solving for), r is the interest rate (6% or 0.06), n is the number of times the interest is compounded per year (2), t is the number of years (4).

We can plug in the given values and solve for P: 
$100,000 = P(1+0.06/2)^(2*4)
$100,000 = P(1.03)^8
$100,000 = P*1.26532
P = $78,941 (rounded to the nearest dollar)

Therefore, Shane must deposit $78,941 to have a balance of $100,000 four years from now.

Shane Wants to Invest Money in a 6% CD That