Question

Your mother is trying to choose one of the following bank CDs to deposit $10,000. Which one will have the highest future value if she plans to invest for three years? (Assume a 365day year and use 4 decimal places.) Group of answer choices 3.44%, compounded daily 3.45%, compounded weekly 3.46%, compounded monthly 3.48%, compounded quarterly 3.50%, compounded annually.

Answer 1

Future value formula,

imxn Future value = Present value x (1+-

Future value when compounded daily,

0.0344 365 3 Future value = 10,000 X (1+305

Future value = 10,000 x 1.1087077

Future value = 11,087.077

Future value when compounded weekly,

Future value = 10,000 X (1+ 0.0345 52x: tur e value = 10,000 x 6 52)

Future value = 10,000 x 1.1090077

Future value = 11,090.077

Future value when compounded monthly,

Future value = 10,000 X (1+ 0 .0346 19x. ire value = 10,000 x 6 12 )

Future value = 10,000 x 1.1092129

Future value = 11,092.129

Future value when compounded quarterly,

0.0348 Future value = 10,000 X (1+ 1

Future value = 10,000 x 1.1095433

Future value = 11,095.433

Future value when compounded annually,

Future value = 10,000 X (1+4.00)

Future value = 10,000 x 1.1087179

Future value = 11,087.179

When interest rate is 3.48% compounded quarterly, the future value will be highest.