Final answer:
To calculate the value of a CD at the end of a certain period, use the formula for compound interest.
Step-by-step explanation:
To calculate the value of a CD at the end of a certain period, you can use the formula for compound interest: A = P(1 + r/n)^(nt), where A is the future value, P is the principal amount, r is the annual interest rate, n is the number of times interest is compounded per year, and t is the number of years. In this case, the principal amount is $1,000, the annual interest rate is 2% (0.02), the interest is compounded annually (n = 1), and the number of years is 5 (t = 5). Plugging in these values into the formula:
A = 1000(1 + 0.02/1)^(1*5) = $1104.08
Therefore, the value of the CD at the end of the five years is $1104.08.
Step-by-step calculation:
1.Convert the percentage rate to a decimal: r = 2.58% = 0.0258.
2.Substitute the values into the formula: FV = $500 (1 + 0.0258/1)^(1*5).
3.Calculate the future value: FV = $500 (1 + 0.0258)^5.
4.Perform the calculations: FV ≈ $500 * (1.0258)^5 ≈ $500 * 1.1359 ≈ $567.95.
The future value of a $500 investment at a 2.58% annual compound interest rate for 5 years would be approximately $567.95.