Find the future value of a 150000 Certificate of Deposit tha

Find the future value of a $150,000 Certificate of Deposit that pays compounded interest every six months at the rate of 4% per year. The CD has a term of 5 years.

Calculate the FV (Future Value) using the “Future Value or Compound Amount of $1.00” table in your textbook.

Calculate the FV (Future Value) using the formula: FV = P(1 + R)^N

How much interest was earned on the investment?

Solution

P = $150,000

R= 4%

n = 5 years

FV = P (1+ (R/2n))^(2n) (since, compounded every six months.)

FV = 150,000 (1+ 0.04/(2 x 5))^ ( 2X5) = 150,000 (1+ 0.004)^(10) = 150,000 x 1.041 = $156150

Interest earned = $156150 - $150000 = $6150