Question

So I really need help with all of these questions please!

1. Palma wishes to establish a fund for her granddaughter's college education. what lump sum must she deposit in an account that pays with an annual interest rate of 6 percent, compounds monthly, if she wishes to have $10,000 in ten years? Rounds to two decimals.

2. You invest $1600 in an account paying 5.4% interest compounded daily. What is the account's effective annual yield? Write as a decimal rounded to three decimals.

Answer 1

see.. rate is 6.
Interest + Principal amount = 10000
time is 10 years.
apply simple interest formula.

Answer 2

I'm assuming you know the compound interest formula. Write it out for no. 1. You'll need to rearrange, because you already know the final amount and want the starting amount.

For no. 2, you need to use the formula again. You also need to understand what they're asking for in "effective annual yield."

Answer 3

i got the first answer right but i still need help on the second one please!

Answer 4

Okay, write out your formula.

Answer 5

well i forgot when it is compounded daily, what do you divide by again?

Answer 6

The number of times it compounds per year.

Answer 7

so this is probably wrong but is the equation
A=1600(1+(.054/12)^(12)

Answer 8

Re-read question 2. How often does it compound per year?

Answer 9

it compounds daily but i don't know what to divide by. that's why i asked that earlier. i dont know what it is.

Answer 10

Okay, fair enough. In the first question, I assume you divided by 12, right? Why 12?

Answer 11

because there is twelve months in a year. so does that mean i divide by 1?

Answer 12

Right. It compounds monthly, and there are 12 months in a year, so it's 12.

In number 2, it compounds daily. Can you see where this goes?

Answer 13

yeaaa still got the wrong answer.

Answer 14

So you're dividing by 365 now?