Question

Investment: Suppose you receive a gift of $1,000 and decide to open a CD (certificate of

deposit) as a low risk investment. The best CD rate you could find is 2.25%, which means that
your original investment will grow at a rate of 2.25% each year.
Assuming the rate of increase does not change, which of the following statements is TRUE
about your CD account balance?
It will no longer grow after several years.
It will triple in approximately 3 years.
O 4 years after the original investment, it is approximately $1,093.
O It will double in approximately 10 years.

Answer 1

Answer: 4 years after the original investment, it is approximately $1,093.

Explanation:

Hi, to answer this question we have to apply the simple interest formula:

I = p x r x t

Where:

I = interest

P = Principal Amount

r = Interest Rate (decimal form)

t= years

Replacing with the values given

I = 1000x (2.25/100) x t

• It will triple in approximately 3 years. FALSE

I = 1000x (2.25/100) x 3 =67.5

1000+67.5 = 1067.5

• It will no longer grow after several years: False, it will grow because it has a growth rate.

• 4 years after the original investment, it is approximately $1,093. TRUE

I = 1000x (2.25/100) x 4 =90

1000+90 = $1090

• It will double in approximately 10 years.

I = 1000x (2.25/100) x 10 =225

1000+90 = $1225

Feel free to ask for more if needed or if you did not understand something.