Question

Mary Stahley invested $2500 in a 36-month certifi- cate of deposit (CD) that earned 8.5% annual simple interest. When the CD matured, she invested the full amount in a mutual fund that had an annual growth equivalent to 18% compounded annually. How much was the mutual fund worth after 9 years?

Answer 1

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Answer:

$13,916.24

Explanation:

First, we need to find the value of the CD at maturity.

A = P(1 +rt) . . . . simple interest rate r for t years

A = $2500(1 +0.085·3) = $2500×1.255 = $3137.50

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Now, we can find the value of the account with compound interest.

A = P(1 +r)^t . . . . . rate r compounded annually for t years

A = $3137.50 × 1.18^9 = $13,916.24

The mutual fund was worth $13,916.24 after 9 years.