In: Finance
You deposit $10,000 in a certificate of deposit that
pays interest of 4.25% per annum.
What amount will your deposit grow to after five years
if the bank compounds interest:
a. Annually
b. Semi-Annually
c. Quarterly
d. Monthly
e. Daily
Please show all your work and explain your
answers.
Answer a.
Amount Invested = $10,000
Annual Interest Rate = 4.25%
Period = 5 years
Future Value = Amount Invested * (1 + Interest
Rate)^Period
Future Value = $10,000 * 1.0425^5
Future Value = $12,313.47
Answer b.
Amount Invested = $10,000
Annual Interest Rate = 4.25%
Semiannual Interest Rate = 2.125%
Semiannual Period = 10 (5 years)
Future Value = Amount Invested * (1 + Interest
Rate)^Period
Future Value = $10,000 * 1.02125^10
Future Value = $12,340.16
Answer c.
Amount Invested = $10,000
Annual Interest Rate = 4.25%
Quarterly Interest Rate = 1.0625%
Period = 5 years or 20 quarters
Future Value = Amount Invested * (1 + Interest
Rate)^Period
Future Value = $10,000 * 1.010625^20
Future Value = $12,353.81
Answer d.
Amount Invested = $10,000
Annual Interest Rate = 4.25%
Monthly Interest Rate = 0.354167%
Period = 5 years or 60 months
Future Value = Amount Invested * (1 + Interest
Rate)^Period
Future Value = $10,000 * 1.00354167^60
Future Value = $12,363.02
Answer e.
Amount Invested = $10,000
Annual Interest Rate = 4.25%
Daily Interest Rate = 0.01164%
Period = 5 years or 1,825 days
Future Value = Amount Invested * (1 + Interest
Rate)^Period
Future Value = $10,000 * 1.0001164^1,825
Future Value = $12,366.64