5. Durco Automotive needs a $2 million balance in its contingency fund 3 years f

Question

5. Durco Automotive needs a $2 million balance in its contingency fund 3 years from now. The chief financial officer (CFO) wants to know how much to deposit now into Durco's high-yield investment account. Determine the amount if it grows at a rate of 13% per year using simple interest. The amount if it grows at a rate of 13% per year using simple interest is A. $1,438,849 B. $1,523,320 c. $1,152,340 D. $1,632,400 Durco Automotive needs a $2 million balance in its contingency fund 3 years from now. The chief financial officer (CFO) wants to know how much to deposit now into Durco's high-yield investment account. Determine the amount if it grows at a rate of 13% per year using compund interest 6. The amount if it grows at a rate of 13% per year using compound interest is $ A. $1,138,849 B. $1,223,320 C. $1,352,340 D. $1,386,100

Explanation / Answer

5) The amount that is required to be deposited now that becomes $2 million in 3 years at 13% rate is given by

Amount = principal + principal x rate x time

2 million = P + P x 3 x 13%

2 million = 1.39P

P = 1,438,849

Option A

6) Using compound interest this sum of money is

2 million = P(1 + 13%)^3

P = 2000000/(1 + 13%)^3 = 1,381,600

Option D

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