Question

PLEASE HELP FAST!!!!!

Lucy received a $1300 bonus. She decided to invest it in a 3-year certificate of deposit (CD) with an annual interest rate of 1.27% compounded monthly.

Answer the questions below. Do not round any intermediate computations, and round your final answers to the nearest cent. If necessary, refer to the list of financial formulas.

(a) Assuming no withdrawals are made, how much money is in Lucy's account after 3 years?
$____

(b) How much interest is earned on Lucy's investment after 3 Years?
$____

Answer 1

(a) $1350.46

(b) $50.46

Explanation:

You want to know the future value of a $1300 CD earning 1.27% compounded monthly for 3 years, along with the amount of interest earned.

Future value

The compound interest formula tells you the future value is ...

FV = P(1 +r/12)^(12·t)

where r is the annual interest rate and t is the number of years.

Application

Using the given values, we have ...

FV = $1300(1 +0.0127/12)^(12·3) ≈ $1350.46

(a) The value after 3 years is $1350.46.

The interest earned is the difference between the final value and the amount of the original investment:

Interest = $1350.46 - 1300.00 = $50.46

(b) The interest earned by the CD is $50.46.

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