Dynoxo Textiles has a cash inflow of $1 million, which it needs for a long-term investment, at the end of one year. It plans to deposit the money in a bank CD that pays daily interest at an annual rate of 4.50 percent. What will be the value of the investment at the end of the year? (Round to the nearest dollar.)
A) $1,020,475
B) $1,000,103
C) $1,037,500
D) $1,046,025

Question

Quizplus · Accepted Answer

The value of the investment at the end of the year can be calculated using the formula for compound interest: A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($1 million), r is the annual interest rate (4.50% or 0.045), n is the number of times that interest is compounded per year (365, since it is daily), and t is the time the money is invested for in years (1 year). Plugging in the values: A = $1,000,000(1 + 0.045/365)^(365*1) = $1,046,025 when rounded to the nearest dollar.

Dynoxo Textiles Has a Cash Inflow of $1 Million, Which