Solve the application problem. If no interest rate is given, assume % interest compounded daily. Round to the nearest
cent.
-Paul Pierce has $7,000 to deposit in a certificate of deposit but is debating whether to leave it there for 2 years or for 3 years. Assume 40% compounded daily in both situations, and find the compound amount in each case.
A)$7,582.98; $7,892.43
B)$7,582.98; $7,897.43
C)$7,592.98; $7,892.43
D)$7,582.98; $15,784.85

Question

Solve the application problem. If no interest rate is given, assume  % interest compounded daily. Round to the nearest
cent. 
-Paul Pierce has $7,000 to deposit in a certificate of deposit but is debating whether to leave it there for 2 years or for 3 years. Assume 40% compounded daily in both situations, and find the compound amount in each case.
A)$7,582.98; $7,892.43 
B)$7,582.98; $7,897.43 
C)$7,592.98; $7,892.43 
D)$7,582.98; $15,784.85

Quizplus · Accepted Answer

Using the formula A=P(1+r/n)^(nt), where A is the compound amount, P is the principal, r is the interest rate, n is the number of times compounded per year, and t is the time in years, we have:

For 2 years: 
A = 7000(1+(0.40/365))^(365*2) 
A = $7,582.98

For 3 years: 
A = 7000(1+(0.40/365))^(365*3) 
A = $7,892.43

Therefore, the best choice is to leave it in the CD for 3 years as it will earn a higher compound amount.

Solve the Application Problem