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9 October, 19:13

Lori buys a $1500 certificate of deposit (CD) that earns 6% interest that compounds monthly. How much will the CD be worth in:

5 years?

10 years?

486 months?

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Answers (1)
  1. 9 October, 20:05
    0
    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1+r/n) ^nt

    Where

    A = total worth of the CD at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or amount of CD bought.

    From the information given,

    P = 1500

    r = 6% = 6/100 = 0.06

    n = 12 because it was compounded 12 times in a year.

    The expression becomes

    A = 1500 (1+0.06/12) ^12 * t

    A = 1500 (1+0.005) ^12t

    A = 1500 (1.005) ^12t

    1) When t = 5 years,

    A = 1500 (1.005) ^12 * 5

    A = $2023.3

    2) When t = 10 years,

    A = 1500 (1.005) ^12 * 10

    A = $2729.1

    2) When t = 486 months = 486/12 = 40.5 years,

    A = 1500 (1.005) ^12 * 40.5

    A = $16935
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