Question

Every six months, Juanita deposits $500 into an interest-bearing account to save for her children's tuition. The interest rate on the account is 6.9% compounding semi-annually. What is the present value of the investment if Juanita's children leave for college in 10 years?
$7,384.74
$7,138.46
$5,706.78
$5,338.43

Answer 1

What do you think it is.?

Answer 2

Alright, so to find interest you will use this formula I = PRT
P = Principle
R = Rate
T = Time (Must be in years)
So, using this formula a way you could find the interest is to turn the percentage to a decimal.
5.75% to 0.0575
Then, you just multiply all your key words.
5,000×5×0.0575

Another way is to do this
5.75 percent of 5000×5

Here is an example that may help you!

Answer 3

The above method is for simple interest, not compound interest.

Compound interest can be calculated with:

A = P(1+r/n)^(nt)

Where P is the principal amount invested (500), r is interest rate as a decimal (6.9% so r = 0.069), n is the number of times compounded per year (semi annually means it compounds twice per year or n = 2) and t is time (t = 10 for 10 years)

Plug in and evaluate A