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5 August, 14:25

Your grandmother put some money in an account for you on the day you were born. This account pays 8% interest per year. On your 21st birthday the account balance was $5033.83. The amount of money that your grandmother originally put in the account is closest to: A) $600. B) $800. C) $1000. D) $1200.

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  1. 5 August, 18:22
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    C. $1,000

    Explanation:

    The computation amount is shown below:-

    Interest rate per period = Interest rate per annum : Number of compounding per annum

    = $8.00 : 1

    = 8%

    Number of periods = Number of years * Number of compounding per annum

    = 21 * 1

    = 21

    Present value = Future value * (1 : (1 + rate of interest) ^number of years)

    = $5033.83 * (1 : (1 + 8%) ^21)

    = $5033.83 * (1 : (1.08) ^21

    = $5033.83 * (1 : 5.033833715)

    = $5033.83 * 0.198655748

    = 0.999999262

    = $1,000

    Therefore for computing the present value we simply applied the above formula.
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