Question

On Melissa's 6th birthday, she gets a $2000 CD that earns 7% interest compounded quarterly. If the CD matures on her 13th birthday, how much money will be available?​

Answer 1

`A\simeq3250.83`

Explanation:

The amount formula in compound interest is:

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

where:

P = principal amount

r = annual interest

n = number of compounding periods

t = number of years

We already know that:

P = $2000

`r = 7\% = (7\%)/(100\%)=0.07`

t = 7 (number of years from 6th to 13th bday)

n = 4 (quarterly in a year)

Then,

`A=2000(1+(0.07)/(4) )^((4)(7))\\\\A=2000(1+(0.07)/(4) )^(28)\\\\A=3250.825792\\\\A\simeq3250.83`