Question

Malika buys a cd for $2300 that earns 2.8% apr and is compounded quarterly. the cd matures in 5 years. she will be paid the interest she earns each quarter. how much interest will malika have earned on this cd after the first quarter?

a. $14.00
b. $15.40
c. $14.70
d. $16.10

Answer 1

After the first quarter, Malika will have earned $16.10 in interest on the CD that has an APR of 2.8% and is compounded quarterly.

Step-by-step explanation:

Malika will have earned $16.10 in interest after the first quarter. To calculate the quarterly interest, we use the formula for compound interest, but since she is paid the interest each quarter, it becomes a simple interest calculation for the first quarter. The formula to calculate interest for one quarter is:

I = P × r × t

Where I is the interest earned, P is the principal amount, r is the quarterly interest rate, and t is the time in quarters. For the calculation:

P = $2300
r = 2.8% per year or 0.028 per year which is divided by 4 to get the quarterly rate: 0.028/4 = 0.007 per quarter
t = 1 quarter

Now, calculating the interest:

I = $2300 × 0.007 × 1 = $16.10