Answer: the interest earned on a 6-year CD with a 2% annual interest rate compounded annually is approximately $633.76.
Explanation:
To calculate the interest earned on a 6-year CD with a 2% annual interest rate compounded annually, you can use the formula for compound interest:
A = P(1 + r/n)^(nt)
Where:
A = the future value of the investment/CD, including both the principal and interest.
P = the principal amount (initial deposit) = $5,000
r = the annual interest rate (as a decimal) = 2% = 0.02
n = the number of times interest is compounded per year = 1 (compounded annually)
t = the number of years the money is invested = 6
Now, plug these values into the formula and solve for A:
A = 5000(1 + 0.02/1)^(1 * 6)
A = 5000(1.02)^6
A = 5000 * 1.126752
A ≈ $5,633.76
Now, to find the interest earned, subtract the principal amount from the future value:
Interest = A - P
Interest = $5,633.76 - $5,000
Interest ≈ $633.76