Question

On Melissa's 6th birthday, she gets a $5000 CD that earns

6% interest, compounded semiannually. If the CD matures
on her 10th birthday, how much money will be available?

Answer 1

To calculate the amount of money available on Melissa's 10th birthday, use the formula for compound interest. By substituting the given values into the formula, the amount of money available on her 10th birthday is approximately $6,039.11.

Step-by-step explanation:

To calculate the amount of money available on Melissa's 10th birthday, we can use the formula for compound interest:

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

Where:

• A = the amount of money available on her 10th birthday
• P = the initial investment, which is $5000
• r = the interest rate, which is 6% or 0.06
• n = the number of times interest is compounded per year, which is 2 for semiannually
• t = the number of years the CD is held, which is 4

By substituting these values into the formula, we get:

A = 5000(1 + 0.06/2)^(2*4)

Simplifying the equation, we have:

A = 5000(1 + 0.03)^8

A = 5000(1.03)^8

Calculating this, we find that the amount of money available on Melissa's 10th birthday is approximately $6,039.11.