Question

Ursula Vanov can invest $5,000 in a 1-year CD at 3% compounded monthly or a 1-year CD compounded daily. Determine the amount at maturity of each investment. What is the difference in the amounts?

Answer 1

Solving for the amount of maturity given that it is compounded monthly for 1 year with an interest of 3%, we have the formula and solution below:
A = P (1+r/n)^rn
A = $5,000 (1.040417)
A =$5202.085

For compounded daily, we have the solution below:
A = $5,000 (1.040443)
A = $5202.215

The difference in amount is shown below:
Difference = $5202.215 - $5202.085
Difference = $0.13