Problem 01034 Simple and Compound Interest Durco Automotive

Problem 01.034 Simple and Compound Interest Durco Automotive needs a $1 million balance in its contingency fund 3 years from now. The chief financial officer (CFO) wants to know how much to deposit now into Durco\'s high-yield investment account. Problem 01.034·a Simple and Cmpound Interest Determine the amount if it grows at a rate of 13% per year using simple interest. The amount if it grows at a rate of 13% per year using simple interest is $ | 693050

Solution

The company needs 1 million after three years in its fund. The aim is to find how much to deposit now at a rate of 13 percent simple interest so that it becomes 1 million after 3 years

This amount is computed as P

1 million = P + P x R x T

1000,000 = P(1 + 13%*3)

P* = 1000.000/1.39 = $719,424

We should invest  $719,424 now so that it gets accumulated and become $1 million after 3 years.