You deposit $5,000 in a 5-year bank CD that pays 3 percent interest per year. How much will you get from this deposit at maturity?

Question

Quizplus · Accepted Answer

The formula for calculating the maturity amount of a CD is:
M = P(1 + r/n)^(nt)
Where,
M = maturity amount
P = principal amount, i.e., $5,000
r = interest rate in decimal form, i.e., 0.03
n = number of times interest is compounded per year, i.e., 1
t = number of years, i.e., 5

Plugging in the values, we get:
M = 5000(1 + 0.03/1)^(1*5)
M = 5796.05

Rounding to the nearest dollar, the answer is $5,796. Therefore, the best choice is C.

You Deposit $5,000 in a 5-Year Bank CD That Pays