Question

Suppose you buy a CD for $200 that earns 3% APR and is compounded quarterly. The CD mature sin 2 years. How much will this C be work at maturity

Answer 1

212.3

Explanation:

For this problem we have a CD earning interest every four months. Therefore, supposing that the 3% APR is distributed equally along the year, we have that quarterly the previous amount earns 1%.

Hence, for the first period we have:

p1 = 200(1 + 0.01)

Now, the maturity period is 2 years, then we have 6 periods, therefore:

p2 = p1(1 + 0.01)

p3 = p2(1 + 0.01)

.

.

.

p6 = p5(1 + 0.01)

We can make things easier making the following calculation:

`200(1+0.1)^(6)`

According to the above, we may say that the CD will be worth $212.3 at maturity.