Question

An online-only bank currently offers a 7-year CD (certificate of deposit) paying simple interest rate of 4% per quarter. If you want to get $4,240 from this CD 7 years later, how much do you have to purchase today?

Answer 1

The answer is $1,413.94

Step-by-step explanation:

Number of periods(N) = 28 periods (7 years x 4 quarters)

Interest rate(I/Y) = 4% per quarter. Therefore, interest rate per year is 16% per year(4% x 4 quarters)

Future value(FV) = $4,240

Present Value (PV) = ?

Let's use a financial calculator:

N = 28; I/Y = 4, FV = 4,240; CPT PV= -1,413.94

Therefore, the present value is $1,413.94