Question

Mary Stahley invested $1500 in a 48-month certificate of deposit (CD) that earned 6.5% annual simple interest. When the CD matured, she invested the full amount in a mutual fund that had an annual growth equivalent to 21% compounded annually. How much was the mutual fund worth after 10 years? (Round your answer to the nearest cent.)

Answer 1

Answer:

$12714.98

Explanation:

Data provided in the question:

Initial amount invested = $1,500

Simple interest rate = 6.5%

Duration for simple interest = 48 months = 4 years

Now,

Simple interest = Amount × Interest rate × Time

= $1,500 × 0.065 × 4

= $390

Therefore,

Total amount = $1500 + $390

= $1890

Now

The amount = $1890 is invested in mutual fund which is compounded annually at 21% for 10 years

thus,

Final amount = Principle × (1 + r)ⁿ

here, r = 21% = 0.21

n = 10 years

Therefore,

Final amount = $1890 × (1 + 0.21)¹⁰

= $12714.98