Suppose you have $2,350 and plan to purchase a 5-year certificate of deposit (CD)that pays 3.5% interest,compounded annually.How much will you have when the CD matures?

Question

Quizplus · Accepted Answer

To solve this, we can use the formula for compound interest:

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

where:
A = the amount at the end of the investment (unknown)
P = the initial amount of the investment ( $2,350) 
r = the interest rate (3.5% or 0.035)
n = the number of times the interest is compounded per year (annually, so n = 1)
t = the number of years the money is invested (5 years)

Now we can fill in the formula and calculate:

A = 2,350(1 + 0.035/1)^(1*5)
A = 2,791.06

Therefore, you will have $2,791.06 when the CD matures.

Suppose You Have $2,350 and Plan to Purchase a 5-Year