Question

A bank offers the following certificates of deposit:

Terms in years	Annual nominal interest rate, compounded semi-annually
1	5%
2	6%
3	7%
4	8%

The bank requires that interest accumulate at the certificate’s interest rate, and does not permit early withdrawal. The certificates mature at the end of the term. During the next six years, the bank will continue to offer these certificates of deposit.

Jeff invests 1000 in the bank.

Calculate the maximum amount he can withdraw at the end of six years.

A. 1480

B. 1510

C. 1540

D. 1570

E. 1600

Answer 1

To earn Maximum Interest, For first months, 4 year Interest Rate will be applicable and for rest 2 years, 2 year-interest rate will be applicable.

FV = PV*[(1+Interest Rate)^Number of Periods]

Amount after 4 years = 1000*[(1+0.04)^8] = $1368.569

Amount after 6 years = 1368.569*[(1+0.03)^4] = $1540.34

Therefore, Maximum amount that can be withdrawn = $1540