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 $300

and an APR of 0.33%
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

$5.01

Explanation:

the compound interest formula is:

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

A = Principal + Interest

P = Principal, in this case $300

r = rate of interest, in this case .0033 or .33%

n = number of compounding periods, in this case 12

t = period of time, in this case 5

Substitute:

A = 300[1 + (.0033/12]^60

A = 300(1 + .000275)^60

A = 300(1.000275)^60

A = 300(1.0167)

A = 305.01

305.01 - 300 = 5.01

profit on $300 invested for 5 years, compounding monthly at an interest rate of .33% is $5.01