Your brother has asked you to help him to choose an investment. He has $6,000 to invest today for a period of two years. You identify a bank CD that pays an annual interest rate of 4.25 percent with the interest being paid quarterly. What will be the value of the investment in two years?
A) $6,550
B) $6,529
C) $6,107
D) $6,216

Question

Quizplus · Accepted Answer

We can use the formula for compound interest to calculate the value of the investment in two years:

A = P(1 + r/n)^(nt)

where A is the ending value, P is the principal (starting value), 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.

Plugging in the given values, we get:

A = 6000(1 + 0.0425/4)^(4*2)
A = 6000(1.010625)^8
A = $6,528.94

Therefore, the best choice is B, which is the closest option to the calculated amount.

Your Brother Has Asked You to Help Him to Choose