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.

Question

Valerie Young

Business

3 January, 21:34

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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Answers (1)

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Robin · Answer 1

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.