suppose you invest 1400 in a certificate deposit CD which ea

suppose you invest $1,400 in a certificate deposit CD which earns 2.25% interest compounded twice per year. How much money will you have when you have when the CD reaches maturity in 10 years?

Solution

FUTURE VALUE= PRESENT VALUE.(1+r)ⁿ

where r is the effective interest rate and n is the time period which is given 10 years

as 2.25% interest compounded twice per year

so r=(1+0.0225/2)²=(1.01125)²=1.02263

effective interst rate is 2.263%

future value=1400.(1+0.02263)¹⁰=1400(1.02263)¹⁰⁼1400.(1.25079)=1751.11