Question

Future value (with changing years). Dixie Bank offers a certificate of deposit with an option to select your own investment period. Jonathan has $7,500 for his CD investment. If the bank is offering a 4.5% interest rate, compounded annually, how much will the CD be worth at maturity if Jonathan picks a a. two-year investment period? b. six-year investment period? c. ten-year investment period? d. fifteen-year investment period? a. How much will the $7,500 CD investment at 4.5% interest rate be worth at maturity if Jonathan picks a 2-year investment period? (Round to the nearest cent.)

Answer 1

Given,

Investment = $ 7500

Interest rate (r) = 4.5% or 0.045

Solution :-

FV = Investment x ( 1 + r )ⁿ

Now,

a) Period (n) = 2 years

FV = $ 7500 x ( 1 + 0.045 )²

= $ 7500 x ( 1.045 )²

= $ 7500 x 1.092025 = $ 8190.19

b) Period (n) = 6 years

FV = $ 7500 x ( 1 + 0.045 )⁶

= $ 7500 x ( 1.045 )⁶

= $ 7500 x 1.30226012 = $ 9766.95

c) Period (n) = 10 years

FV = $ 7500 x ( 1 + 0.045 )¹⁰

= $ 7500 x ( 1.045 )¹⁰

= $ 7500 x 1.55296942 = $ 11647.27

d) Period (n) = 15 years

FV = $ 7500 x ( 1 + 0.045 )¹⁵

= $ 7500 x ( 1.045 )¹⁵

= $ 7500 x 1.93528244 = $ 14514.62