Question

Please provide a step-by-step instruction: You deposit $6,900 in a 2-year certificate of deposit (CD) earning 2.2% annual interest compounded daily. At the end of the 2 years, you reinvest the compound amount plus an additional $6,900 in another 2-year CD. The annual interest rate on the second CD is 2.7%, compounded daily. What is the compound amount (in dollars) when the second CD matures? (Enter a number. Round to the nearest cent. Assume all years have 365 days.)

Answer 1

Answer: the compound amount when the second CD matures is $14889.9

Explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = total amount in the account at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount deposited

From the information given,

P = 6900

r = 2.2% = 2.2/100 = 0.022

n = 1 because it was compounded once in a year.

t = 2 years

Therefore,.

A = 6900(1 + 0.022/1)^1 × 2

A = 6900(1.022)^2

A = 7206.9396

The amount reinvested in the second account is

7206.9396 + 6900 = $14106.9396

r = 2.7% = 0.027

t = 2 years

n = 365 because it was compounded daily . Therefore,

A = 14106.9396(1 + 0.027/365)^2 × 365

A = 14106.9396(1.000074)^730

A = 14106.9396 × 1.0555

A= $14889.9