Question:
Cindy will require $11,000 in 2 years to return to college to get an MBA degree. How much money should she ask her parents for now so that, if she invests it at 9% compounded continuously, she will have enough for school? (Round your answer to the nearest dollar.)
Answer:
Formula for continuous interest is A=Pe^(rt)
If she needs 11000, that is A. P is what we need to find. e is a constant. r=rate or 0.09 and t=2 (for years)
11000=Pe^(.09*2) Isolate P
11000/e^(.09*2) or around $9188.
$11,000 / 1.09 / 1.09 = $9, 258
Proof:
1st year $9,258 + $833 = $10,091
2nd year $10,091 + $908 = $10,999
She should ask $9,258 to have $11,000 after two years.
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