You have invested $5,000 into a certificate of deposit for 5 years. It pays a 6% annual nominal rate, compounded semiannually. What is the value of the certificate of deposit at the end of 5 years?
A)$6,691.13
B)$6,719.58
C)$28,185.46
D)$8,954.24

Question

Quizplus · Accepted Answer

The formula for the future value of a certificate of deposit with semiannual compounding is:

FV = P*(1 + r/n)^(n*t)

Where:
P = principal = $5,000
r = annual nominal rate = 6%
n = number of times compounded per year = 2 (semiannually)
t = number of years = 5

Plugging in the values, we get:

FV = 5,000*(1 + 0.06/2)^(2*5)
FV = 5,000*(1.03)^10
FV = $6,719.58

Therefore, the value of the certificate of deposit at the end of 5 years is $6,719.58, which is closest to option B.

You Have Invested $5,000 into a Certificate of Deposit for 5