Rita promises to give her 12-year-old daughter $12,000 when she turns 18. How much does she need to put in the bank now if the interest rate is 12 percent per year?

Question

mathstudent55 · Answer

Compound or simple interest?

anonymous · Answer

simple intrest

mathstudent55 · Answer

The formula for calculating simple interest is 

I = prt,

where I = interest earned
p = principal amount
r = annual rate of interest
t = time in years

mathstudent55 · Answer

p + I = future value

The principal amount + interest earned equals the future value.

She needs to deposit x amount now. This is the principal.

mathstudent55 · Answer

She wants a future value of $12,000.

p + I = future value

x + prt = 12,000

but p is the unknown amount x, so

x + xrt = 12,000

You know r and t, so replace them in the equation above and solve for x.