Question

In: Finance

You invest $2,800 in a 4-year certificate of deposit (CD) that pays 3.8% interest, compounded annually....

You invest $2,800 in a 4-year certificate of deposit (CD) that pays 3.8% interest, compounded annually.

How much money will you have when the CD matures?

Solutions

Expert Solution

We need to use the time value of money equation.
Future value=(Present value)*(1+Interest rate)^(Time period)
Substituting the values, we get;
Future value=(2800)*(1+3.8%)^4
=(2800)*(1.038)^4
=(2800)*1.160885573
=3250.479604 or 3250.48 (Rounded to 2 decimal places)
Answer: Hence, we will have $3250.48 when the CD matures.


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