Calculate the maturity value of a five-year, $400,000 Guaranteed Investment Certificate at accumulating at 6% compounded quarterly.
A) $538,742
B) $696,988
C) $880,000
D) $903,443
E) $994,001

Question

Quizplus · Accepted Answer

The maturity value of a compound interest investment is calculated using the formula A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years. For this problem, P = $400,000, r = 6% or 0.06, n = 4 (since interest is compounded quarterly), and t = 5 years. Plugging these values into the formula gives A = $400,000(1 + 0.06/4)^(4*5) = $400,000(1 + 0.015)^(20) = $400,000(1.015)^20 ≈ $538,742.

Calculate the Maturity Value of a Five-Year, $400,000 Guaranteed Investment