A bank offers a CD that pays a simple interest rate of 7.0 %. How much must you put in this CD now in order to have $2 comma 000 for a home-entertainment center in 5 years. The present value that must be invested to get $2 comma 000 after 5 years at an interest rate of 7.0 % is $

In order to have $2,000 in five years time $1481.48 must be invested today at 7.0% simple interest

Explanation:

The amount to invest in the CD now can be computed using the present value formula, which is given below:

A=P * (1+rn)

P=A / (1+rn)

A is the future value which is expected cash flow in 5 years time i, e $2000

r is the rate of return on the CD which is 7.0%

n is the number of years the funds would be placed in the CD and that is 5 years

P=$2000 * (1+7.0%) ^-5

P=$2000/1 + (0.07*5)

P=$2000 / (1+0.35)

P=$2000/1.35

P=$1481.48