Intrest rates/investment problem (pert), I just need someone to check my work

In summary, the conversation involved two problems related to interest rates and investments. The first problem discussed the amount of money Cindy should ask her parents for now in order to have enough to return to college in 3 years, assuming a continuous compounded interest rate of 12%. The second problem involved Carla inheriting a building worth $250,000 and deciding whether to sell it now or wait for 4 years, during which the value is projected to increase by 25% per year. The correct solutions were calculated and confirmed by the expert summarizer.
  • #1
KatieLynn
65
0
intrest rates/investment problem (pert), I just need someone to check my work:)

Homework Statement



1)Cindy requires $10,000 in 3 years to return to college to get and MBA degree. How much money should she ask her parent for now so that, if she invests it at 12% compounded continuously, she will have enough for school?

2)Carla just inherited a building that is worth $250,000. The building is in a high demand area, and the value of the building is projected to increase at a rate of 25% per year for the next 4 years. How much more money will she make if she waits for four years to sell the building instead of selling it now?


Homework Equations



P=Ae^(-rt)

The Attempt at a Solution



1)so the equation would be

P= (10,000)e^(-.12*3) which equals $6,977 correct?


2)A=Pe^(rt)

A= $250,000e^(.12*4) = $679,570

so then $679,570-$250,000=$429,570

is all that correct?
 
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  • #2
KatieLynn said:
1)so the equation would be

P= (10,000)e^(-.12*3) which equals $6,977 correct?
Yes.
2)A=Pe^(rt)

A= $250,000e^(.12*4) = $679,570

so then $679,570-$250,000=$429,570

is all that correct?
Other than r = 25% not 12%, yes.
 
  • #3
ah yeah I did the math right, I just typed in the wrong rate for the second one
 

1. What is the formula for calculating compound interest?

The formula for calculating compound interest is: A = P(1 + r/n)^nt, where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years.

2. How does the frequency of compounding affect the final amount?

The more frequently compounding occurs, the higher the final amount will be. This is because with more frequent compounding, the interest is added to the principal more often, resulting in a higher overall interest earned.

3. What is the difference between simple interest and compound interest?

Simple interest is calculated based on the initial principal amount only, while compound interest takes into account the accumulated interest as well. This means that with compound interest, the interest earned each period is added to the principal, resulting in higher overall interest earned.

4. How can I use the compound interest formula to solve investment problems?

The compound interest formula can be used to calculate the final amount of an investment, given the initial principal, interest rate, and time period. This can be helpful in determining the potential return on an investment and making informed decisions about where to invest.

5. What are some factors that can affect interest rates?

Interest rates can be affected by various factors such as inflation, economic conditions, government policies, and supply and demand for money. Changes in these factors can cause interest rates to fluctuate and impact the return on investments.

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