Question

Jason Allen is investing $11,000 in a bank CD that pays a 10 percent annual interest. How much will the CD be worth at the end of five years?

Answer 1

By simple interest,

worth after 5 years = $16,500

By compound interest,

Worth after 5 years = $17,715.61

Explanation:

Given:

Principle amount = $11,000

Rate of interest = 10%

Time period = 5 years

Now,

By simple interest

worth after 5 years = Principle × ( 1 + Rate × Time )

Thus,

Worth after 5 years = $11,000 × ( 1 + 0.1 × 5 ) = $16,500

Also,

By compound interest

Worth after 5 years = Principle × ( 1 + r )ⁿ

here,

n is the number of years

Thus,

Worth after 5 years = $11,000 × ( 1 + 0.1 )⁵ = $17,715.61