Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If Mary leaves the funds in the CD for two years she will have $540.80. What amount is Mary depositing?

Question

Quizplus · Accepted Answer

Mary is depositing $500.00. The formula to calculate the future value of an investment is A = P(1 + r)^n, where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), and n is the number of years the money is invested for. Rearranging the formula to solve for P gives P = A / (1 + r)^n. Plugging in the given values (A = $540.80, r = 0.04, n = 2) gives P = $540.80 / (1 + 0.04)^2 = $500.

Mary Deposits Funds into a CD at Her Bank