Question

Lori buys a $1500 certificate of deposit (CD) that earns 6% interest that compounds monthly. How much will the CD be worth in 10 years?

Answer 1

The CD will worth in $2729.09 after 10 years.

Solution:

Principal (P) = $1500

Rate of interest (r) = 6%

                              $=\frac{6}{100}$

                             = 0.06

Time (t) = 10 years

Compounded monthly

Number of times interest applied per time period

n = 12

A = Total amount

Compound interest formula:

$A=P\left(1+\frac{r}{n}\right)^{n t}$

$A=1500\left(1+\frac{0.06}{12}\right)^{12\times 10}$

$A=1500\left(\frac{12+0.06}{12}\right)^{120}$

$A=1500\left(\frac{12.06}{12}\right)^{120}$

$A=2729.09$

The CD will worth in $2729.09 after 10 years.