Question

Sergio has decided to diversify his investments in the following way:
$4,000 in an account earning 3.2% simple interest

$4,000 in a savings account earning 2.1% interest compounded annually

$7,500 in a certificate of deposit earning 5% interest compounded quarterly

How much total interest will Sergio earn on his investments at the end of 4 years?

Answer 1

$4,000 3.2% simple interest.

S.I. = Principal * interest rate * term
S.I = 4000 * 0.032 * 4 years
S.I = 512

$4,000 2.1% interest compounded annually

A = P (1 + r/n)^nt
A = 4000 (1+0.021/1)^1*4
A = 4000 (1.021)^4
A = 4000 (1.087)
A = 4,348
Interest = 4,348 - 4000 = 348

7,500 CD 5% interest compounded quarterly

A = 7500 (1 + 0.05/4)^4*4
A = 7500 (1.0125)^16
A = 7500 (1.22)
A = 9,150
Interest = 9150 - 7500 = 1,650

Total interest = 512 + 348 + 1650 = 2,510.