Question

Suppose you buy a CD for $500 that earns 2.5% APR and is compounded quarterly. The CD matures in 3 years. How much will this CD be worth at maturity?

A. $512.62
B. $538.82
C. $512.64
D. $504.18

Answer 1

We're going to use the compounded intrest formula:


`A = P(1+(r)/(n))^(nt)`

Where P is the initial cost
r is the rate as a decimal
n is the amount per year that you invest the rate
t is the amount of time at which you're checking how much it's worth (yrs)

Using this information, we can use:


`A = 500(1+(0.025)/(4))^(3*4) \approx 538.82`

So your answer will be B.