Question

Vanessa wants to buy a CD for $500 that earns 3% APR and is compounded quarterly. The CD matures in 2 years. Her interest earned will not be reinvested in the CD. What will Vanessa's total interest earned be at the date of maturation?

A. $30.00

B. $15.00

C. $60.00

D. $120.00

Answer 1

The correct answer is Choice A: 30.

To find the amount of interest, we have to use the formula for compounded interest.

It would be: y = 500(1 + 0.03/4)^(8)

We divided the 3% by 4 because it is quarterly. We raised it to the 8th power, because it will be compounded 8 times (4 x 2).

The interest comes out to $30.80.