Question

Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has ​$6,000 for his CD investment.

If the bank is offering a 5​% interest​ rate, compounded​ annually, how much will the CD be worth at maturity if Jonathan picks a:
(a) two​-year investment​ period?
(b) five​-year investment​ period?
(c) eight-year investment​ period?
(d) twenty-year investment​ period?

Answer 1

The maturity value of certificate of deposit(CD) would be:

A = P
`(1\ +\ r)^(n)`

wherein, A= Amount

P= Principal

r= rate of interest compounded annually

n= no of years to maturity

(a) two year investment plan:

$6000 (1 + .05) (1 + .05) = $6615

(b) five year investment plan:

= $6000
`(1\ +\ .05)^(5)` = 6000 (1.2763) = $7657

(c) eight year investment plan:

= $6000
`(1\ +\ .05)^(8)` = $6000(1.4774) = $8865 approx.

(d) twenty year investment = $6000
`(1\ +\ .05)^(20)` = $6000 (2.6533) = $15,920 approx