Question

Lori buys a $459 certificate of deposit (CD) that earns 5.6% interest that compounds monthly. How much will the CD be worth in 6 years? (Express your answer rounded correctly to the nearest cent!)

Answer 1

According to the question:

Principal, $P =\ 459$

Rate of interest, $r=5.6\%$

Time, $t = 6 \ years$

Compounded Monthly.

According to the formula of Compound Interest, the worth of certificate of deposit in 6 years will be:

$A = P(1+\frac{r}{n} )^{nt}$

i.e., $A = 459(1+\frac{5.6}{(100)(12)} )^{(12)(6)}$

i.e., $A = 459(1+\frac{56}{(10)(100)(12)} )^{(12)(6)}$

i.e., $A = 459(1+\frac{14}{(10)(100)(3)} )^{(12)(6)}$

i.e., $A = 459(1+\frac{14}{3000} )^{(12)(6)}$

i.e., $A = 459(\frac{3000+14}{3000} )^{(12)(6)}$

$A = 459(\frac{3014}{3000} )^{72}$

$A \approx \ 641.80$