Question

Stephanie has 10,000 she wants to put in a certificate of deposit (CD) account, so she can make the most interest on her money. She found a bank near her that pays 2% on cds and also compounds interest quarterly.
How much will Stephanie have in her CD account after 6 months at the bank?

How much would Stephanie have in her account after 6 months interest was not compounded, and the bank only used a simple interest formula to calculate?

What observation can you make about the difference between simple and compound interest when it comes to your money in the bank?

Answer 1

With compounding, the amount in her account would be $10,050.

With simple interest, the amount that would be in her account would be $10,100.

Usually, an account that earns compound interest would have a higher value when compared with an account that earns a simple interest.

How much would Stephanie have in her account after 6 months?

The formula that is used to calculate the future value with quarterly compounding is:

FV = P(1 + r)^n

• P = amount deposited
• r = interest rate = 2%/4 = 0.5%
• n = number of periods = 1

10,000(1.005) = 10,050.

Simple interest = 10,000 x 6/12 x 2% = $100

10,000 + 100 = $10,100

To learn more about compound value, please check: brainly.com/question/26331578

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