Mary deposits funds into a CD at her bank. The CD has an annual interest of 4.0%. If Mary leaves the funds in the CD for two years she will have $540.80. Assuming no penalties for withdrawing the funds early, what amount would Mary have at the end of one year?

Question

Quizplus · Accepted Answer

To find the initial amount, we need to use the formula: 
A = P(1 + r/n)^(nt), where A is the final amount, P is the principal amount, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the time in years.
Given: 
r = 4.0% = 0.04
t = 2 years
A = $540.80
Let's find P:
P = A / (1 + r/n)^(nt)
P = 540.80 / (1 + 0.04/1)^(1*2)
P = $500.00
Now we need to find the amount at the end of one year:
A = P(1 + r/n)^(nt)
A = 500.00(1 + 0.04/1)^(1*1)
A = $520.00
Therefore, Mary would have $520.00 at the end of one year. The best choice is D.

Mary Deposits Funds into a CD at Her Bank