Question

Most banks pay you interest to put money in their bank. Stephanie has $10,000 she wants to put in a Certificate of Deposit (CD) account at U.S. Bank, which pays 2% on CDs and compounds interest quarterly.

A. How much will Stephanie have in her CD account after 6 months?
B. How much would Stephanie have after 6 months if interest was not compounded?

Answer 1

Stephanie will have $10,201 in her CD account after 6 months with compound interest. She would have $10,100 after 6 months if interest was not compounded.

Step-by-step explanation:

To calculate how much Stephanie will have in her CD account after 6 months with compound interest, we can use the formula:

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

Where:

• A is the total amount after the time period
• P is the initial principal amount ($10,000)
• r is the annual interest rate (2%)
• n is the number of times that interest is compounded per year (quarterly, so n=4)
• t is the time in years (6/12 = 0.5)

Plugging in the values, we get:

A = 10000(1 + 0.02/4)^(4*0.5) = $10,201

So, Stephanie will have $10,201 in her CD account after 6 months with compound interest.

To calculate how much Stephanie would have after 6 months if interest was not compounded, we can use the simple interest formula:

A = P(1 + rt)
Plugging in the values, we get:

A = 10000(1 + 0.02*0.5) = $10,100

So, Stephanie would have $10,100 after 6 months if interest was not compounded.