Question

Susan has placed $10,000 in a certificate of deposit (CD) that earns 3.78 percent interest per year. The term of the CD is three years. How much money will she have at the end of the term?

a) $11,200.00
b) $11,039.50
c) $10,358.70
d) $10,290.60

Answer 1

Susan will accumulate approximately $11,200.00 in her CD after three years at an annual interest rate of 3.78 percent, showing the power of compound interest over time.

Step-by-step explanation:

Susan wants to know how much money she will have at the end of the term if she places $10,000 in a certificate of deposit (CD) that earns 3.78 percent interest per year for three years. To solve this, we can use the formula for compound interest which is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount (the initial amount of money), r is the annual interest rate (decimal), n is the number of times that interest is compounded per year, and t is the time the money is invested for in years.

In Susan's case, the interest is likely compounded annually (n=1), so the formula simplifies to A = P(1 + r)^t. Plugging in the values: A = 10000(1 + 0.0378)^3. Calculating this gives A = 10000(1.0378)^3 which comes to approximately $11,200.00.

Therefore, the correct answer is a) $11,200.00.