Question

You are considering investing in a 5-yr CD (certificate of deposit) with an annual yield of 6.5% and monthly compounding. If you invest $8,000, your effective interest earned is most nearly: 6.5% 6.6% 6.8% 6.7%

Answer 1

it is given that the investment will be earning an interest rate of 6.5% that will be compounded monthly. This means compounding period is 12.

Effective rate of interest is measured by

(1+6.5%/12)^12 - 1

= 6.69%

Select 6.7%.