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7 June, 18:34

Ethan put $4000 in a 2-year CD paying 5% interest, compounded monthly. After 2 years, he withdrew all his money. What was the amount of the withdrawal?

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  1. 7 June, 21:53
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    The future worth of money invested with a compound interest is calculated through the equation,

    F = P x (1 + ieff) ^n

    where F is the future worth, P is the present worth, ieff is the effective interest and n is the number of years.

    ieff = (1 + i/m) ^ (m) - 1

    where m is the number of compoundings per year. In this case, m = 12.

    ieff = (1 + 0.015/12) ^12 - 1 = 0.05116

    Substituting this to the equation above,

    F = ($4000) x (1 + 0.05116) ^2 = $4419.76

    Thus, the amount of the withdrawal is approximately $4419.76.
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Home » Business » Ethan put $4000 in a 2-year CD paying 5% interest, compounded monthly. After 2 years, he withdrew all his money. What was the amount of the withdrawal?
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