Question

CD interest rates vary significantly with time. They hit a historical high in 1981, when the average rate was 16.7%. In 2000, it was 8.1%. In 2009, it was 2%. Find the interest earned by a $3000 two-year CD with interest compounded quarterly in each of the following years. (Round your answers to the nearest cent.)

(a) in 1981 $

(b) in 2000 $

(c) in 2009 $

Answer 1

Answer:

Given That

a) If principal value p earn compounded interest at a periodic interest rate i for n periods , the future value ( compound interest ) can be obtain by

Principal value invested by her in CDs

p = $ 3000 . Periodic interest rate in 1981 is

= 0.04175 , and

n = 2.4 quarter

= 8 quarter

Future value (compound interest ) is given by

  

= $ 4,161.303

The principal is P = $ 3000 , and the total of principal and interest is FV = $ 4,161.303

Thus , the interest is

FV - P = 4,161.303 - 3000

= 1,161.303

b)

If principal value p earn compounded interest at a periodic interest rate i for n periods , the future value ( compound interest ) can be obtain by

Principal value invested by her in CDs

p = $ 3000 . Periodic interest rate in 2000 is

= 0.02025 , and

n = 2.4 quarter

= 8 quarter

Future value (compound interest ) is given by

  

= $ 5,218.77

The principal is P = $ 3000 , and the total of principal and interest is FV = $ 5,218.77

Thus , the interest is

FV - P = 5,218.77- 3000

= 2,218.77

c)

If principal value p earn compounded interest at a periodic interest rate i for n periods , the future value ( compound interest ) can be obtain by

Principal value invested by her in CDs

p = $ 3000 . Periodic interest rate in 1981 is

= 0.005, and

n = 2.4 quarter

= 8 quarter

Future value (compound interest ) is given by

  

= $ 3,122.1

The principal is P = $ 3000 , and the total of principal and interest is FV = $ 3,122.1

Thus , the interest is

FV - P = 3,122.1 - 3000

= 122.1

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