Question

A CD, or “certificate of deposit,” is a type of savings account with a fixed rate and term, meaning you can only redeem it when the term is over. If you open a CD with an initial deposit of $600 and an APR of 0.41% compounded monthly, what profit will you have earned when you redeem the CD in 5 years? Round your answer to the nearest cent, if necessary.

Answer 1

Answer : $772.86

Step by Step Explanation:
To calculate the profit earned on a CD, you can use the formula for compound interest:

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

Where:
- A is the future value (the amount you'll have when you redeem the CD).
- P is the principal amount (initial deposit), which is $600 in this case.
- r is the annual interest rate (0.41% or 0.0041 as a decimal).
- n is the number of times the interest is compounded per year (monthly compounding means n = 12).
- t is the number of years (5 years).

Now, plug these values into the formula:

A = 600(1 + 0.0041/12)^(12*5)

A = 600(1 + 0.00034166667)^(60)

A ≈ 600(1.0205)^60

A ≈ 600 * 1.288103153

A ≈ $772.86 (rounded to the nearest cent)

So, you will have earned a profit of approximately $772.86 when you redeem the CD in 5 years.