Question

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On Melissa's 6th birthday, she gets a $2000 CD that earns 5% interest, compounded semiannually. If the
CD matures on her 16th birthday, how much money will be available?
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$
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Answer 1

9514 1404 393

Answer:

$3277.23

Explanation:

The future value of the CD with interest at rate r compounded semiannually for t years will be given by ...

A = P(1 +r/2)^(2t)

where P is the principal value.

For the given rate and time, this is ...

A = $2000(1 +0.05/2)^(2·10) = $2000(1.025^20) ≈ $3277.23

The value of the CD at maturity will be $3277.23.