Question

Tara deposits $5,000 in a certificate of deposit. The annual interest rate is 7%, and the interest will be compounded quarterly. How much will the certificate be worth in 10 years? Round your answer to two decimal places.

Answer 1

To calculate the value of Tara's certificate of deposit in 10 years, the compound interest formula is applied. The future value of the CD, after being compounded quarterly at a 7% annual interest rate, will be $10,045.57.

Step-by-step explanation:

Compound Interest Calculation

To calculate the future value of a certificate of deposit (CD) with compound interest, use the formula A = P(1 + r/n)^(nt), where:

• P is the principal amount ($5000)
• r is the annual interest rate (7%, or 0.07)
• n is the number of times interest is compounded per year (quarterly, so 4)
• t is the number of years the money is invested (10 years)

Plugging these values into the formula yields:

A = 5000(1 + 0.07/4)^(4*10)

A = 5000(1 + 0.0175)^(40)

A = 5000(1.0175)^(40)

A = 5000(2.00911485751286)

A = 10045.5742875643

After rounding to two decimal places, the CD will be worth $10,045.57 in 10 years.